Introduction

In corporate law, directors are considered the agents of the company and thereby occupy a fiduciary position which obliges them to act in its best interests. The Business Judgement Rule (BJR) emerged as a judicial doctrine in Delaware, United States to provide protection to directors while discharging their duties. Recognising the need to protect directors from liabilities for decisions made in good faith, Delaware devised this doctrine in the light of increasing fear of litigation due to business risks and uncertainties associated with it. BJR is not absolute; there are exceptions to this rule which include fraud, illegality, conflict of interest, etc. Moreover, the doctrine was formulated in the context of corporate structure existing in the United States.

In India, the fiduciary duties of directors are codified under Section 166 of the Companies Act, 2013 which mandates directors to put the company’s interests in priority and exercise their duties with due care and diligence. Various duties have emerged from this provision like fiduciary duties of directors, not involving in diversion of corporate opportunities, exercising proper purpose rule. In considering whether such doctrine should be formally incorporated in India or not needs a thorough consideration of India’s corporate realities. While BJR in the Indian context has been talked about to a great extent, this article does not go into its legal depths. Instead, it argues that BJR, as developed in the United States (U.S.), should not be imported directly into Indian corporate law without studying the Indian market first and adapting it accordingly. Drawing on Enlightened Value Maximization (EVM) theory developed by Michael C. Jensen, a professor at Harvard Business School, this article seeks to use the theory to present an integrated approach by combining BJR with Enlightened Value Maximization to promote both innovation and protect stakeholders’ interests.

Risk Aversion Factors in BJR

The Business Judgment Rule plays an important role in protecting risky business decisions taken by directors. Two dominant models are relevant here – shareholder wealth maximisation and financial value maximisation.

Under the shareholder wealth maximisation model, the company’s primary goal is to enhance shareholder value. This model aligns with the traditional understanding that directors’ fiduciary duties are owed primarily to shareholders. The fiduciary duties owed to the shareholders stemmed from the decision in Dodge v. Ford Motor Co where the traditional understanding of “shareholder fidelity” was adopted on the presumption that “what is good for the corporation is good for the shareholder.”

On the other hand, financial value maximisation is a broader term which focuses on stakeholders’ interests and aims to achieve a higher value for all the affected people, including creditors, employees, etc. This model becomes especially relevant during insolvency, where the focus shifts to preserving the company’s value to satisfy its debts. Without protection to directors, there would be heightened litigation risks especially from creditors during the “zone of insolvency” which would prevent directors from effectively managing company’s assets. Thus, BJR got expanded and didn’t remain limited to serving shareholders only, which would give directors greater latitude to take risky decisions without fear of liability.

BJR, apart from giving protection to the directors, also help them to take up business risks as long as business decisions are made in good faith. This will facilitate value creation and long-term planning. This also in part depends on the level of risk that shareholders are willing to take. There has been quite a debate whether BJR should be codified or not. Some have claimed that it is really context dependent, and the BJR, as formulated by the Delaware courts, should not be imported in stricto sensu and each country should study their market, investor behaviour, capital developments, etc. Though shareholders have limited liability in the company, yet the dividends they receive are dependent on the returns the company gets, which in turn can get affected if any project fails. Therefore, studying the shareholder’s behavioural patterns and risk preferences provides valuable insight into the corporate governance structure in a given jurisdiction.

In the United States context, the shareholders are not risk averse, and they prefer high-risk, long-term investments. Thus, there was a need to come up with the concept of BJR in the United States to encourage innovation and simultaneously give protection to directors for risks they undertake in business operations. Thus, BJR became associated with promoting innovation and growth.

Whether the BJR should be codified or not is highly dependent on the companies’ structure in India and the real priorities of the shareholders and stakeholders in such companies. If focussing specifically on shareholders’ interests, as the traditional conception of BJR focuses primarily on these shareholders, it will be seen that shareholders in India tend to depict a behaviour of risk aversion and are more willing to create a higher value for their investments in the short run, instead of undertaking risky ventures which might affect their future earnings. Empirical and behavioural studies have shown that “loss hurts more than reduction in profits”, showing that investors are hesitant to take up risks rather than to gain potential profits. Indian investors are not considered as ‘neutral’ in their dealings with the company, and they prioritise stable returns over long-term, speculative high-risk ventures. Hence, Indian shareholders are less likely to approve a resolution where high risks are involved. They prefer safer projects and as a result, BJR, which shield directors from liability while taking risky decisions, might take such legal protection as a green signal to undertake risky and speculative deals, going against the essence of shareholders primacy.

Therefore, BJR cannot simply be transposed from U.S. to India without understanding the corporate governance structure in India. Though, it is now being adopted in many jurisdictions, the specificities and peculiarities of the Indian context needs to be taken into consideration by the legislation before any general assumptions can be made about it.

Interconnecting Enlightened Value Maximisation and Business Judgement Rule

Michael C. Jensen, professor at Harvard Business School, proposed a model called Enlightened Value Maximization (EVM), which is also called as “enlightened stakeholder theory”. This model focusses on creating long-term goal of increasing the value of the company by keeping in mind the interests of all stakeholders. This model acknowledges that stakeholders like customer, suppliers, communities, employees, etc. play a major role in making a company grow.

Unlike traditional stakeholder theory which solely focuses on considering other stakeholders’ interests, Jenson brings all such interests down to a common metric – long-term value of a company. Enlightened value maximisation aims to maximise long-term firm value which goes beyond a mere consideration of stakeholder’s interests. EVM recognizes the “trade-offs” that happen between different stakeholders within a company. This model uses the traditional financial value maximisation or even the stakeholder theory but goes one step beyond to substantiate that “trade-offs” between these competing groups in a company should be resolved by fixating everyone’s goals and objectives to long term maximisation.

The inherent assumption underlying such theory is to figure out how to handle miscommunications within the organisation and how to balance every stakeholder’s interests. Therefore, to come at a common ground, there is a need to consider value maximisation as a “scorecard” of an organisation so that everyone in the corporation have a guiding path to follow with a coherent, long-term objective in mind. Also, Jenson emphasises on the role each stakeholder plays in a company as without one, the company will not be able to realise its goals effectively.

For directors to assess the long-term future of a company, they are given discretionary powers and here is precisely where BJR is needed the most. The basic premise of EVM rests on the assumption that it will help in “resisting the temptation to maximize the short-term financial performance” as having a parochial focus on short-term profits can hamper the long-term value of a company. Therefore, EVM complements the BJR model by providing directors the latitude to focus on long-term interests of the company rather than be influenced by risk aversive behaviour of the shareholders.

In the United Kingdom, Section 172 of the UK Companies Act 2006 talks about “enlightened shareholder theory”. Enlightened stakeholder theory is different from the enlightened shareholder theory where the later focuses on putting the long-term value in mind as a means to an end, the end being to maximise the value for the shareholders. However, EVM focuses on creating long-term value for the entire corporation, which entails more than just “acceptance of value maximisation” and instead aims to create a sense of obligation among its employees, managers to consider the long-term value of the firm as the “basic criterion”.

BJR helps directors to take on risky ventures without fear of judicial intervention, provided it is done in good faith. However, this comes as a challenge in India where shareholders exhibit risk aversive behaviour. Such behaviour might dissuade directors from taking any innovative projects and will not be able to work effectively for long term progress of the company due to fear of litigation suits. Though both BJR and EVM are developed in the United States and has not been codified in India, EVM can mitigate some of the gaps that BJR has when applied in the Indian context. The prevention of “trade-offs” can ensure directors do not sideline any one stakeholder’s interests and hide behind the veil of BJR. Thus, it can promote growth while also upholding the duties that directors have towards other stakeholders. This model can make the shareholders see the long-term impact of business decisions if directors are able to adequately demonstrate the viability and profitability of the project in the long run. Hence, BJR should be modified according to the Indian context, and for this, connecting EVM with BJR can provide a good alternative to address the challenges specific to the Indian context.

Conclusion

Risk aversive behaviour of Indian shareholders, coupled with comparatively less robust mechanisms of shareholder activism and class action lawsuits in India creates a logical premise that BJR, as understood in the United States, needs to be moulded before it can be applied in India. A better alternative could be to intertwine BJR with EVM. EVM provides a normative structure for achieving long-term firm value. The benefits of EVM can act as a check against abuse of powers and prevent exercise of arbitrary discretion in the hands of the directors.

BJR should be incorporated in India with certain modifications. Through this, it can foster calculated business risks while also providing a protective shield for the directors. The courts also do not need to make any second guesses with respect to the business decisions taken; instead, adopting EVM with BJR can enable them to focus more on the procedural parts – like director’s good faith, due diligence, their focus on long-term value – rather than substantive decision or the outcome that came about.

Moreover, risk aversive behaviour of Indian investors can be mitigated by shifting their focus on long-term value creation. This will also help in dispelling some of the trust issues that shareholders might have towards the board of a company. It will lessen the perception of directors acting solely for their own financial interests and in turn reinforcing the fundamental presumption that “what is good for the corporation is good for the shareholders.”

Therefore, Business Judgement Rule, if codified and complemented by Enlightened Value Maximisation, can strike a fair balance between shareholder value and risk-taking decisions, while also shielding the directors. This approach will be able to respond effectively to Indian corporate market and will prevent the market on becoming sluggish due to its excessive safety valve that it can create around itself because of over-cautious policies. As the Indian economy grows, there is a need to also promote innovation and entrepreneurship, while also protecting Indian investors.

The Intersection of Fast-Track Mergers and Reverse Flipping

The Ministry of Corporate Affairs (MCA) issued notifications regarding the amendments on 4 September 2025 to the Companies (Compromises, Arrangements, and Amalgamations) Rules 2016, in response to the rise in reverse flipping. According to 2022 and 2023, six startups went public every year; 2024 reached a peak with 13 startups, and 18 startups went public in 2025. All of these startups raised around ₹41,000 crore in total, due to reasons like IPO readiness, regulatory assurance, and the availability of sophisticated capital markets in India, reflecting an increase in the matter. These amendments aimed to simplify fast-track mergers under Section 233 of the Companies Act 2013, by expanding the scope to include unlisted companies with borrowing not exceeding ₹200 crore, without any defaults, and with minimal intervention of National Company Law Tribunal (NCLT) and timelines ranging from three to six months.

This also raises an important question: are cross-border flips actually operated within the provisions of Section 233, or does the Foreign Exchange Management Act 1999 (FEMA) remain a dominant gatekeeper by requiring approval from the Reserve Bank of India (RBI)? This analysis holds that FEMA remains a dominant gatekeeper in reverse flipping transactions, despite the fact that the new reforms simplify the process available under the company law. This weakens the intended efficiency of the fast-track mergers as it results in a dual-approval mechanism in such matters.

Reverse Flipping and Cross-Border Mergers

Reverse flipping transactions happen when a company shifts its legal domicile from overseas jurisdictions such as Singapore, the US, or the Cayman Islands, back to India, generally through an inbound merger of the foreign holding company to an Indian entity. Sections 230-232 of the Companies Act 2013, govern mergers in India, which establishes the standard scheme of arrangement process subject to the approval by the National Company Law Tribunal. In contrast, Section 233 provides a fast-track merger route for certain eligible companies, aiming to reduce the intervention and approval of the NCLT. Cross-border mergers are specifically governed by Section 234 of the Companies Act, 2013, read with Rule 25A of the Companies (Compromises, Arrangements, and Amalgamations) Rules 2016, and the Foreign Exchange Management (Cross Border Merger) Regulations 2018 (FEMA Merger Regulations). A structural tension exists between corporate law, which emphasises procedural efficiency, and FEMA, which prioritises capital account regulation, macro-prudential concerns, and deemed RBI approval under Regulation 9(1) for compliant cases.

Section 233 after MCA’s 2025 Amendment

Before the 2025 amendments, the utility of Section 233 was limited, often due to conservative interpretations by regulators and hesitation to apply the fast-track route to complex structures. The process of obtaining NCLT approval for mergers and corporate restructuring could be protracted, often taking nine months to a year or even longer. The 2025 reforms, enacted through the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2016, expanded eligibility to include unlisted companies with borrowings ≤ ₹200 crore (no defaults), fellow subsidiaries, and broader intra-group schemes, enabling Regional Director approval instead of full NCLT scrutiny for faster timelines, typically around 3-6 months.

FEMA: The Gatekeeper

RBI exercises its statutory authority in cross-border reverse flipping transactions, given by FEMA Merger Regulations, extensively embodying valuation techniques, implications of capital flows, downstream investment, round-tripping risks, and conformity to market restrictions and pricing protocols. Cross-border transactions falling within the scope of Regulation 9(1) of the FEMA Merger Regulations are considered to have already obtained RBI approval, and therefore, are not required to secure a mandatory approval under Rule 25A of the Companies (Compromises, Arrangements, and Amalgamations) Rules 2016. On the contrary, non-compliant transactions mandatorily require an express approval of the RBI, signifying that in these matters, the RBI effectively acts as the final determining authority and the primary substantive gatekeeper. This renders the procedural streamlining under MCA contingent on FEMA compliance.

Fast-Track Mergers and Cross-Border Reality: Doctrinal Friction

Section 233 of the Companies Act 2013, primarily assists simple and domestic merger transactions that involve only slight risks and steer clear of substantial public interest issues or creditor-related hindrances. On the other hand, reverse-flipping transactions include cross-border elements, are attuned to capital shifts, and are of great importance from a wide economic angle. This mismatch lingers untouched even after the revised 2025 reforms, as they are largely procedural and do not provide directions for cross-border transactional issues. The lack of any established principles in such matters for the uniform use of Section 233 in overseas cases then depends on the regulatory judgments instead of any firm judicial or legal principles. This contradicts the core purpose of the reforms, as apparently, the deals might seem to be suitable for “fast-track” mergers, but would face setbacks in practice due to the obligatory approvals by the RBI under FEMA. This doctrinal friction reveals that even if the 2025 revisions seek to ensure smooth procedural operations, they do not diminish FEMA’s dominance, hindering the swift procedures involved in such matters.

The case of Flipkart in Reverse Flipping Practice

The case of Flipkart is a recent example of reverse flipping transactions. The Singapore-based company of Flipkart merged with its Indian operations due to the domestic IPOs, projected to value around $60–70 billion. Since this merger was categorised as an intra-group merger with minimal stakeholder objections, it was eligible under the amended Section 233. The merger had to be sanctioned by the NCLT because of the complexities involved, which was sanctioned by the Mumbai Bench of the NCLT on 12 December 2025. Since the merger could not live up to the standards prescribed in Regulation 9(1) of the FEMA Merger Regulations, the merger was reviewed extensively by the RBI, which extended the process, covering valuation, share exchange, and the effects of capital movements under its review. The board approval for the merger was obtained in April 2025, but the final approval was received in December 2025, which exceeded the expected three to six months’ timeline, again confirming the preponderant role of FEMA in such regulatory decisions over the company law.

Normative Analysis: Is Section 233 Structurally Ill-Suited for Reverse Flips?

Section 233 and reverse-flipping transactions are mutually distinct from each other. Whereas the former is concerned with procedures regarding minimal risk mergers in India, the latter is basically regulatory and has major macroeconomic implications. This makes the system weak since Section 233 does not provide a mechanism to deal with issues governed by FEMA regulations, except for procedural simplification. This further reveals the likely gap in joint efforts by the institutions, MCA and RBI, since there is no efficient and timely approval mechanism to integrate corporate law procedures with foreign exchange regulations. India can learn from smoother and more integrated practices, such as in Singapore, where the Accounting and Corporate Regulatory Authority (ACRA) and Monetary Authority of Singapore (MAS) work together on these matters to ensure that mergers occur quickly and with more certainty. Even after the 2025 reforms, India has no such integrated and streamlined process in place, forcing reverse-flipping transactions to go through a prolonged dual-staged approval process.

Conclusion

The notifications regarding the amendments in 2025 provide a crucial impetus to achieve a smoother and more efficient procedural regime under Section 233 for foreign reverse-flipping transactions. However, these amendments remain inadequate to bring about any provisions to restrict the RBI’s regulatory discretion, which the RBI exercises through FEMA. Therefore, FEMA continues to take precedence over the above-mentioned company law procedures, where the RBI’s approval is the substantive gatekeeper and, in effect, sidelines the provisions available under Section 233.

There is an immediate need to fill the gap between the MCA and the RBI through strict timelines for approvals in cross-border cases and clear directives to enable Section 233 to operate effectively in cross-border cases. In conclusion, these mergers may move ahead quickly owing to the streamlined procedures, but FEMA and other foreign exchange regulations will continue to slow down their pace until there is a proper coordination mechanism between the MCA and the RBI.

The Reserve Bank of India’s “Commercial Banks Credit Facilities Amendment Directions, 2026,” notified on 13 February 2026, and effective from 1st April 2026, signal a significant change in the mode by which Indian banks can access capital markets and finance Mergers and Acquisitions. These Directions lay down a risk-calibrated system for “Acquisition Finance” and rationalize credit to securities and capital market intermediaries. These Directions are intended to facilitate genuine strategic transactions while preventing leverage-driven excesses.

How RBI’s Capital Market Exposure Framework Evolved

The RBI has kept a watchful eye on the manner in which banks operate in the equity and capital markets ever since the process of liberalisation was set in motion. While the market has boomed several times over the years, it has also faced periods of strain on bank balance sheets. The rules pertaining to the capital markets were framed with broad guidelines of 40% of the net worth of the bank. Further, the rules were framed with sub-guidelines for direct equity investments, loans to shareholders, and investments through brokers.

However, the rules were revised in the wake of the dot-com bubble burst in 2000 and the GFC of 2008. This was because the leverage in capital market investments was adding to the overall losses of the banks. It is a journey towards the formulation of the ‘Commercial Banks – Credit Facilities Directions of 2025,’ which has been revised under the ‘2026 Amendment Directions.’

The Pre‑Amendment Problem: Under‑Served M&A and Over‑Complex Rules

India’s M&A market had become far more sophisticated by 2025 has deal values crossing 100 billion dollars and transactions spanning distressed acquisitions, sectoral consolidation and cross‑border strategic buys. The banks have often played a modest role in financing such deals, with corporates turning instead to NBFCs, private credit funds and offshore borrowing. The key reason for such regulatory uncertainty and fragmentation was the rules governing bridge loans, loans against shares, financing of brokers, underwriting commitments and exposure limits which were scattered across multiple circulars, sometimes inconsistent.

Banks also faced hard as there were undifferentiated caps and conservative loan‑to‑value (LTV) ratios on loans against such shares and market instruments, which constrained their ability to use these assets as collateral for genuine business credit. Risk committees became especially reluctant to back leveraged buyouts or acquisition structures that could push debt‑equity ratios to unsustainable levels after episodes like IL&FS and the pandemic‑era volatility. This meant that even well‑run companies with strong cash flows struggled to raise such bank‑backed acquisition finance at scale, which slowed the domestic consolidation and tilted the playing field towards deep‑pocketed global buyers.

What the 2026 Amendment Directions Set Out to Do

The 2026 Amendment Directions are RBI’s effort to inject some sense and sophistication into this area. They do not fling prudence out of the window, but rather, they established a specific, well-crafted regime for acquisition finance, updating the provisions on loans against securities, and established a specific chapter on credit to capital market intermediaries (CMIs). The Directions operate by introducing newer definitions, which strike down older provisions that were inconsistent with the new framework and introduced new chapters and paragraphs to the 2025 framework.

Most importantly, there was a requirement in banks to craft specific, board-approved policies on each of these fronts, that included; acquisition finance, loans against eligible securities, and loans to CMIs, outlining internal exposure limits, risk appetites, LTVs, haircuts, and monitoring frameworks. This marked a significant shift from RBI micromanaging every sub-limit to RBI establishing outer limits and requiring boards and risk committees to take certain genuine ownership of the bank’s behaviour within those limits.

Defining “Acquisition Finance” for Strategic M&A

These reforms specifies a “Definition of Acquisition Finance.” According to the Directions, it is a financial arrangement provided to an eligible borrowing entity (a non-financial company) for the purchase of equity shares or compulsorily convertible debentures of a target company or its holding company, with the effect that the acquirer obtains control of the target. The Directions define control as being in accordance with the definition under Section 2(27) of the Companies Act, 2013. This ensured that banking regulation is consistent with Companies Act and the SEBI takeover regulations.

The Directions also include the refinancing of such existing debt of the target company, but only when the refinancing is part of the acquisition arrangement. This ensured that the Directions are not completely exploited by debt rollovers that are opportunistic in nature and merely masquerading as acquisition finance. The Directions also provide that the acquirer can use the subsidiaries or SPVs as the borrowing vehicle, if such vehicle is a non-financial company and if the ultimate acquisition of control of the target is determined at the consolidated level.

Eligibility, Financial Strength and Related‑Party Safeguards

The new regulations are not a free ticket for all. The acquirer has to satisfy tight financial criteria at the time of approval to raise acquisition finance. This requires a minimum net worth of ₹500 crore and a record of net profit after tax for each of the past three financial years for listed acquirers. The same net worth and profit record are required, along with an investment-grade rating of at least BBB at the time of sanction or achieved before disbursement for unlisted acquirers. The intention is to make sure only reasonably solid sponsors can leverage their balance sheets to raise finance for control acquisitions.

The Directions further provide that the acquisition must lead to the acquirer obtaining control, either in one go or through a sequence of related actions completed within twelve months. Acquisition finance is permitted only when crossing certain thresholds; 26%, 51%, 75%, or 90% of voting rights and each step conferring much larger rights of control under applicable law for acquirers already in control of the target. The acquirer and target cannot be related parties under section 2(76) of the Companies Act or otherwise under common control or promoter groups, with certain carve-outs for incremental purchases of stakes, blocking round-tripping, and self-dealing arrangements.

How the New Acquisition Finance Limits Work

The RBI specifies a tough rule that the total funding of the acquiring bank for the acquisition cannot exceed 75% of the acquisition value, and this value has to be determined independently. The acquisition value has to be determined using the SAST Regulations formula for infrequently traded stocks, using criteria such as book value and trading multiples for the publicly listed targets. For unlisted, private targets, two independent valuators are needed, and the lower of the two values is the one that will be used. The acquirer has to shell out at least 25% of the acquisition price in cash, whether from internal accruals or new equity, to ensure a tangible stake in the acquisition.

Risk is further hardened by a hard leverage ratio post-acquisition, i.e., on a pro forma consolidated basis, the debt/equity ratio of the acquirer has to remain at or below 3:1 and within that ratio at all times. The loan is collateralized by the equity or CCDs of the acquired company, and can also be collateralized, if appropriate, by other unencumbered assets of the buyer or target, as well as by corporate guarantees of the group. Bridge loans were permitted, but only for listed acquirers who may require a short-term boost to their equity contribution. Such loans has to be repaid or converted to equity within twelve months, sourced from specified sources such as a rights issue or asset sales.

Loans Against Securities: Rationalising Retail and Corporate Leverage

Apart from acquisition finance, the amendment also makes changes to the treatment of loans secured by “eligible securities.” This applies to listed Group 1 equity, investment-grade listed debt, units of mutual funds, ETFs, REITs, and InvITs. Banks are required to formulate policies regarding the acceptance of securities, defining concentration limits, and determining loan-to-value (LTV) ratios and haircuts.

The Directions lay down maximum LTV limits, such as 60% for listed shares and convertible debt, 75% for equity-oriented mutual funds, ETFs, REITs, and InvITs, and up to 85% for high-quality debt mutual funds and top-rated listed debt which was for individuals and HUFs. There are also prudential limits on the aggregate amount that can be lent to an individual against these securities, along with sub-limits on the use of such loans for the purchase of additional securities in the secondary market or for subscribing to IPOs, FPOs, and ESOPs. The former are generally limited to 75% of the subscription amount, with at least 25% paid as margin by the borrower, and banks are prohibited from lending to their own employees or employee trusts for the purchase of the bank’s own shares. All these loans are required to be included in the capital market exposure of the bank, as per the concentration risk directions.

Policy Rationale, Legal Interplay and Likely Impact

RBI is looking to encourage banks to pursue genuinely strategic mergers and acquisitions, develop the core infrastructure of the capital market, and offer controlled leverage to households and businesses using financial assets; all this while strictly suppressing speculative activities and related-party tunneling. The Directions integrate company law, securities regulation, and banking regulation into a single, seamless whole by linking acquisition finance to “control” as defined in the Companies Act and establishing valuation norms based on SEBI’s SAST Regulations. This will help close the interpretative gaps that have long bedeviled complex transactions.

For banks, the new framework presents a major new business opportunity; acquisition finance that usually carries higher returns than regular corporate loans, but within a carefully crafted framework of eligibility criteria, leverage ratios, security arrangements, and exposure limits. For corporates, particularly larger and more regularly profitable ones, it holds out the promise of more predictable access to rupee-denominated acquisition finance, which could speed up the consolidation process in areas such as infrastructure, manufacturing, telecom, and financial services. The clear view on loans against securities and cash-flow market infrastructure (CMI) lending should help improve last-mile settlement smoothness without promoting profligate borrowing for market intermediaries and investors.

INTRODUCTION

Is the grass truly greener on the Indian side? The concept of reverse flipping as notably practiced by infamous start-ups like  Meesho ,Zepto and Pine Labs where after initially establishing their start-up in foreign countries like Singapore in the case of Zepto to get exposure to bigger markets they “flip” back to India considering favorable tax regimes. On 3^rd January 2025 the National Stock Market published record-breaking 2024 numbers where India had the highest raising of INR 1.67 lakh crore by 268 IPOs. These notable figures made “return to home” attractive by boosting the confidence of investors to invest in the maturing domestic market. But executing a successful reverse flip demands compliance with complex regulations which the author aims to dissect. The authors navigate various tax regimes, company law and FEMA regulations with there various loopholes and providing suggestions for the same.

TAX IMPLICATIONS

Taxation continues to be the most complicated challenge in reverse flipping. But to avoid double taxation, entities prefer two techniques mainly inbound merger and share swapping. Inbound merger is where the Indian entity survives the merger of both and acquires the assets and liabilities of a foreign entity. In Share-swapping, the foreign shareholders exchange their shares with those in an Indian Company.

In case of an inbound merger, shareholders of the foreign amalgamating entity can claim exemption for capital gains tax but only if the transactions meet the criteria for an “amalgamation” under the Indian Income Tax Act, 1961(“IT Act”) .But due to broader interpretation of transfer under the IT Act where it not only includes sales of assets but also extinguishment or relinquishment of capital assets. Furthermore, if the merging entity do not satisfy these conditions, the revocation of shares in the foreign entity becomes taxable, thus, outweighing the tax regimes of internalization.

Whereas, The IT Act envisages this swap as an “exchange”, eventually categorizing it as a transfer subject to tax implications. The amount of tax applied on any foreign shareholder is calculated by the difference between the value of the Indian entity’s shares at the time of the flip and their original acquisition case of foreign shares. Moreover, the indirect transfer provision under the IT Act also applies to share swaps because the income is taxable if it gains substantial value from those transferring shares. This creates potential risks for the foreign shareholders where there is a deterrence to the whole financial benefits purpose of reverse flipping.

Though there are Double Taxation Avoidance Agreements (DTAAs) signed but their expiry also like the recent one on April 1, 2017 with Singapore poses challenges as to how these agreements can be beneficial for long-term tax certainty. This can make the investors lose their faith in India’s efforts for supporting reverse flipping. Also, there are two additional disadvantages in the case of accumulated loss and profit. if the foreign entity faces significant losses which results in breaching shareholder bars, then it may become ineffective post-flip. This also degrades the finances of the Indian entity during the most critical transition phase before achieving stability where PhonePe had to pay INR 8000 crore tax liability. Furthermore, these profits are subjected to taxation under Section 2(22) (c) of the IT Act as deemed dividends, and the excess is also taxed under Section 46(2) of the IT Act as capital gains. These provisions shows though there are several tax benefits for reverse flipping the various limitations, as explained above, may pose a less profitable option for the stakeholders.

COMPANY LAW IMPLICATIONS

Recent amendments in the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, now enable a fast-track merger of foreign holding companies and their Indian wholly-owned subsidiaries under Rule 25A(5). This amendment streamlines procedural formalities by reducing the need for National Company Law Tribunal (NCLT) approval, which is now replaced by only Reserve Bank of India (RBI) approval.

This changes the merger timeframe between 6 to 9 months down to months and opens the door for Indian companies wishing to re-domicile back into India. However, upon closer scrutiny of the change in law there may exist a conflict between Rule 25A(5)(iii), which provides that, a company shall apply under the Fast Track Merger Process and Section 233(14) of Companies Act on 2013 which gives the option to either proceed under Section 233 or to go through the NCLT (National Company Law Tribunal) process under Section 232(3) of Companies Act on 2013. The use of “shall” can be construed as making the fast-track route mandatory, potentially restricting companies from availing the NCLT process.

The ambiguity has been partially eased in practice the 2025 Amendment strengthened the fast-track route, and the NCLT continues to approve reverse flips but the statutory “shall vs. may” tension in Rule 25A(5)(iii) remains formally unresolved. In addition, there are challenges associated with the procedural ease of the amendment. One of the larger challenges is related to valuation and the need to comply with tax laws. The Companies Act, 2013 has limitations on dual-class share structures. Thus, companies relocating to India must also account for a change in their governance structure as well as re-group existing agreements with investors which will lead to diluting funding control.

Another significant area is adherence to sectoral FDI caps during reversal. For example, Razorpay, a fintech firm, is a sensitive sector with foreign investment restrictions under RBI’s Payment and Settlement Systems Act, 2007. In these situations, during restructuring, foreign shareholding must adhere to Press Note 3 (2020), which entails government approval for foreign direct investment (FDI) from nations having a land border with India. This may result in delayed approval processes, deterring investors from funding the transition.

The realignment of corporate governance is another problem. Most of the startups that initially flipped overseas to reach global capital now must comply with Indian disclosure standards, Section 149(3)  director residence requirements under the Companies Act, and higher compliance obligations under SEBI’s Listing Regulations if they want to raise an IPO in India.

FEMA IMPLICATIONS

Reverse flipping is brought under the Foreign Exchange Management (Cross Border Merger) Regulations, 2018, which govern holding of foreign assets, repatriation of funds, and adherence to India’s foreign exchange control regime. A key recent development is the inclusion of “deemed approval” wherein the transactions already complying with FEMA regulations are considered pre-approved by RBI streamlining approval process and reduced regulatory delays.

One of the principal regulatory concerns under FEMA is the treatment of foreign assets and liabilities post-merger. The act permits an Indian company formed by a merger to retain foreign assets subject to their approval under FEMA. If they are not in permitted classes of assets, the company will be required to liquidate them within two years unless an RBI exemption is otherwise provided. This is a massive concern for companies such as Razorpay, which holds foreign-held IP or foreign subsidiaries that generate offshore revenues. Without being able to hold such assets uninterrupted, such firms are faced with operational and tax inefficiencies.

Further, foreign shareholding in the consolidated Indian entity must also satisfy sectoral FDI limits under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. For sectors such as fintech and e-commerce, in which FDI is controlled with stringent caps and marketplace model prohibitions (such as Press Note 2 (2018) for the case of e-commerce), obtaining necessary approvals poses a significant hurdle. Companies such as Meesho, which operate in the e-commerce sector, are required to abide by marketplace prohibitions and avoid inducing any forbidden FDI models, such as inventory-based e-commerce models.

FEMA requires all cross-border transactions to be consistent with pricing guidelines, which require shares issued to foreign investors to be consistent with fair market value norms. If the valuation is significantly different from the expectations of offshore investors, it will discourage investor participation, and the transition will be more difficult. Further, any outstanding foreign debt obligations need to be restructured under the External Commercial Borrowing (ECB) regime, which restricts repayment schedules and utilization of funds. This is another area of regulatory concern for companies undertaking a reverse flip. With these restrictions in place, companies opting for reverse flipping must do so with diligent legal structuring, typically on a case-by-case basis with RBI sanction. The interaction between FEMA capital controls and provisions of company law ensures that despite recent procedural relaxation, regulatory complexity continues to be a formidable hurdle to large-scale use of reverse flipping in India.

It is pertinent to take into consideration the applicability of Ind AS 103 to reverse flipping transactions as a continuation of the existing business using the pooling method with assets recorded at book value. It helps to avoid revaluation and promote financial stability for startups preparing for IPOs.

REGULATORY AND OPERATIONAL ISSUES IN REVERSE FLIPPING

To avoid taxation in share swapping in case of excessive capital gains, entities under Section 54EE of the IT Act would be exempted if the gains are reinvested in any Indian entity within the stipulated time frame. Also, to resolve the ambiguity under Section 9 of the IT Act for indirect transfer provision which creates exposure risks for foreign investors can be bring down by introducing safe harbor thresholds to ensure taxation is proportionate to Indian asset value contribution. There should be automatic reverse flips and industry-specific pricing alleviations in valuation guidelines to avoid stringent FEMA standards. A Reverse Flip Facilitation Committee (RBI, NCLT, SEBI, tax authorities) can be allowed to grant single-window clearance for inward mergers. The cost of transferring assets and the lack of clear guidelines for how to value intangible assets increases financial and compliance costs. Therefore, there is a need for industry-specific exemptions and similar valuation guidelines.

CONCLUSION

To ensure India is an attractive location for high-growth startups, improving regulatory certainty and reducing compliance costs is critical for reverse flips to be a viable option for startups to use in India. Simplified tax provisions within the IT Act, safe harbor exemptions regarding indirect transfers, and harmonization of FEMA regulations with sectoral requirements will increase the ability to transition companies from one country to another. A Reverse Flip Facilitation Committee will also expedite the approval process and reduce delays in the completion of reverse flips.

Introduction

The Insolvency and Bankruptcy Code, 2016 (“the Code”), was designed to prioritize time-bound rehabilitation and maximization of asset value, explicitly seeking to revive businesses rather than merely collect debts. Despite these goals, the Code’s implementation has faced criticisms. Many cases drag on, and average creditor recoveries have remained modest. Stakeholders have therefore pressed for reforms to make the process more efficient and creditor-friendly.

One such reform was the pre-packaged insolvency resolution process (“PPIRP”) for micro, small and medium enterprises (“MSMEs”), introduced in April 2021. However, by September 2024, only 13 pre-pack cases had been admitted. Even though there were many reasons why pre-pack failed, one of the major drawbacks of the system was the inclusion of “Swiss Challenge” in the PPIRP.

The latest IBC Amendment Bill (2025) (“the proposed Amendments”) introduces sweeping changes. Alongside new rules for group and cross-border insolvency, the most notable is a brand-new Creditor-Initiated Insolvency Resolution Process (CIIRP). The proposed amendments however do not include the Swiss Challenge mechanism in the CIIRP, which had been a hallmark feature of the PPIRP.

In this article, we analyse Swiss Challenge in Insolvency focusing on why it failed in PPIRP but is exactly what CIIRP needs. The article also makes policy recommendations for embedding Swiss Challenge in a more efficient manner in the Code.

What is Swiss Challenge?

The Swiss Challenge has been regarded as a competitive bidding process where the authority receives a bid from a party and reserves it as the “base plan”. Then other applicants are encouraged to make an offer to the authority, which is supposed to be better than the base plan. If a competing bid is superior, the original proponent is usually given a “right to match”. This allows them to revise their offer and retain the project if they can meet or exceed the best alternative.

The idea behind Swiss Challenge is to balance innovation with fairness. It incentivizes private parties to bring forward ideas but also ensures that such ideas are not accepted without market testing. It is intended to maximize value and ensure transparency, thereby preventing collusive or preferential allocations of assets in both insolvency and public procurement.

This was introduced to the Indian insolvency domain, when PPRIP was added to the Code.

Swiss Challenge and Pre-Pack: Why did it fail?

Under PPRIP, the insolvent MSME, the Corporate Debtor (“CD”) if eligible under section 29A, is allowed to submit the base resolution plan (“BRP”) to the Resolution Professional (“RP”) which is then exposed to challenge for value maximisation. According to the Insolvency and Bankruptcy Board of India (“IBBI”), this safeguard is intended to maintain the level of stakeholder protection afforded in a standard corporate insolvency resolution process (“CIRP”) while preventing the process from being exploited for strategic advantage. The Committee of Creditors (“CoC”) then compares the BRP with other resolution plans submitted by interested third parties.

The core of the Swiss Challenge is that a third party can submit a better resolution plan. If the original promoter, often the current owner, cannot or does not match the improved plan, they risk losing their company to a new bidder.

However, several features of the Swiss Challenge sit uneasily with PPIRP’s goals. PPIRP was envisaged as a promoter-led speedy mechanism based on the Debtor-in-Possession model (“DIP”). A Swiss challenge introduces delays, litigation risk, and strategic bidding by opportunistic players who have no stake in continuity of the business. This undermines a primary goal of PPRIP, which is time compression.

PPRIP is essentially a pre-negotiated agreement between the CD and its creditors in an attempt to revive the insolvent MSME. A Swiss Challenge turns this negotiated process into an auction, defeating the primary purpose of reviving the CD’s business. The primary objective of the Code is reviving businesses, not selling them off for the purpose of recovery.

Overall, Swiss Challenge appears structurally misaligned with PPIRP. It erodes speed and confidentiality and conflicts with the debtor-friendly bargain that underpins a DIP-style pre-pack.

Is it the missing piece to complete CIIRP?

CIIRP is a recent out-of-court insolvency framework allowing a certain class of specifically notified Financial Creditors (“FC”) to initiate and oversee the entire resolution process without immediately involving the Adjudicating Authority (“AA”).

This new mechanism can be thought of as a ‘private treaty’ for insolvency resolution, as it empowers the creditors and the CD to negotiate and implement a resolution plan outside the AA’s admission process. Such a process mirrors the DIP model of the United States, which allows the CD to retain control of the operations while going through insolvency. The only instance when the doors of the AA  are knocked is for essential approvals, such as a moratorium or execution of the resolution plan, and/or as a fallback option if the process fails.

Under the CIIRP, if the initiating creditor is to place a BRP at the outset, it raises several concerns as to whether the valuation is correct? Could the asset attract as better bidder? Are other market participants being crowded out? These questions strike at the Code’s very objective which is aimed at value maximization and revival of the business. Thus, these questions cannot be answered merely by internal creditor deliberations and hence, the Swiss Challenge arrives as the missing piece of the puzzle.

By exposing BRP to 3^rd party improvement, the Swiss Challenge restores balance to CIIRP’s commitment to speed and a transparent, market-tested model. Through creditor control, mandatory disclosure and statutory timelines, it would allow a single-round and time-boxed Swiss Challenge to be conducted with minimal friction.

Additionally, such external challenges protect minority creditors as it ensures that the OCs are paid in full, increases bidder confidence while safeguarding against speculations of insider preference or strategic underbidding.

At the outset, CIIRP provides the very ingredients where PPRIP lacked, such as an open solicitation framework, creditor-driven governance and strict timelines. These collectively cure the misalignments that caused the challenge to fail in PPRIP. Thus, the Swiss Challenge within the CIIRP allows the creditors to seek a fair value of their debts promptly.

Therefore, the Swiss Challenge does not derail the CIIRP but in actuality, completes it. It supplies the competitive tension required for value maximization while consequently enabling the process to be fast, credible and efficient.

Policy Recommendations

At the initial stage, the BRP shall mirror the Pre-Pack subcommittee’s recommendation that the same shall be ready before commencement of the resolution process, and all the material information shall be disclosed by the RP in a “Standard Information Memorandum”.

Once the BRP is filed, the RP shall open a limited window for inviting competing bids, which shall be a single invitation that shall be received within 7 business days, keeping the statutory timeline strict and efficient. After the CoC identifies the highest-scoring challenger, an improvement cycle of 24-48 hrs. shall begin, allowing each bidder to enhance its previous offer. This single invitation and short-bid cycle prevents drawn-out auctions, which the ILC had warned against while keeping the speedy resolution process intact.

Additionally, to choose the best plan, objective scoring with creditor voting shall be established, which aids in reducing subjective bias and ensures value maximization rather than a purely political outcome. Each of the submitted plans shall be evaluated on predefined criteria (shall be notified by the government), such as cash offered, financial viability and management continuity that shall be evaluated by a committee consisting of the RP along with 1 expert advisor and 1 industry expert (also to be notified by the government).

Subsequently, WAS shall be computed for each plan, and such shall also be placed before the CoC for approval. This hybrid approach ensures that the 66% CoC approval and their commercial wisdom are utilized for selecting the best plan rather than just metrics.

Conclusion

There is a structural gap in the current scheme of CIIRP that cannot be solved internally and creates a risk of unilateral valuation, limited competition, and hence a potential for underpricing. The introduction of Swiss Challenge within the model CIIRP would allow a transparent and swift mechanism as contemplated by the Code rather than leaning towards a private settlement.

Unlike in PPRIP, in which the Swiss Challenge is in conflict with the DIP model and thus delays the process, the challenge within the CIIRP subjects the BRP to a discipline, single-round, competitive process that tests creditor-proposed plans against superior 3rd party plans.

Additionally, the creditor-control, mandatory disclosures, and strict timelines under CIIRP thus create an ideal environment for a controlled process that is value-maximizing and functions efficiently. Therefore, the Swiss Challenge does not only become the missing piece but also reinforces the legitimacy of CIIRP as a credible resolution

INTRODUCTION

The creator economy, which is centred on individual content creators, influencers, and digital entrepreneurs, has brought about a shift in the manner in which value is created and monetized in the current market scenario. As a result, attention and audience trust have become the new currency. The value of the creator economy, as estimated by Goldman Sachs, is projected to reach $480 billion by 2027. The Merger and Acquisition (“M&A”) activity in this sector has recorded a significant 73% rise on a year-over-year basis over the first half of 2025, as private equity players and major media houses merge and acquire new entrants focused on the creator economy.

Building on the momentum, a central question arises regarding how valuation and liability should be determined, where the distinction between a creator’s personal brand and a company’s goodwill is blurred. The blog examines how traditional M&A frameworks fare in this new era of creator-driven businesses, where personal influence is the essential asset for business. It analyzes the legal uncertainties involved in personality-based intangible assets, specifically goodwill, including ownership, transfer, and valuation. In the end,  it offers a practical way to integrate the M&A framework in India, aiming to achieve parity between legal certainty and the dynamics of personal influence and digital goodwill in the creator economy.

The New Face of Goodwill

Conventional corporate goodwill is established from consistent performance, customer trust, and brand recognition developed through an organization’s operations. It is intangible and transferable through valuation, sale, or fusion. On the contrary, a creator’s goodwill is penetratingly personal established in authenticity, individual expression, and emotional significance with their audience. The primary asset becomes audience loyalty. Stepping back of influencer can dodge the acquired goodwill overnight.

Here, the ‘brand’ often is the person. A creator’s market value depends on their identity, voice, and engagement with followers. This has been a gradual movement away from company-based goodwill to personality-based goodwill, where the commercial worth of a venture is tied to its founder’s digital presence and public insight. Unlike earlier businesses that could survive leadership changes, creator-driven ventures face the constant risk of value destruction if the creator decides to withdraw or lose their relevance.

Legal and Commercial Complexities

The challenges surrounding creator-led acquisitions are multifaceted. Primarily, under the current framework of M&A, goodwill is recognized as a transferable commercial right linked with the continuation of business. Under Indian Accounting Standard (Ind AS) 38, goodwill is recognised as an intangible measurable asset. However, in creator economy, the acquirer along with purchasing a company also purchases the persona driving its market worth. Goodwill thus becomes inseparable from the creator’s identity. Assigning an independent monetary value or treating it as a company-owned asset for the purposes of combination becomes difficult.

It also challenges the established principles of ownership, valuation and transferability under Indian company law. In the Good Glamm–POPxo deal, the valuation was largely determined by digital reach and personality-led content, raising concerns about how much goodwill truly belonged to the enterprise and its creators.

Secondly, deal involving a creator’s name, likeness, or endorsement rights fall under personality or publicity rights. These are governed by privacy and intellectual property frameworks. Courts have prohibited exploitation of such rights without consent. It creates a dilemma where acquirer may purchase the business, but unless the creator contracts to license the commercial use of their identity, the goodwill attached to that persona does not legally pass to the acquirer. Besides that, Section 27 of the Indian Contract Act, 1872, provides a restraint on trade, making clauses unenforceable if it is perpetual or overly restrictive. Accordingly, the acquirer’s rights remain conditional on the creator’s continued participation, exposing the deal to reputational and financial risk.

Thirdly, creator-driven enterprise involves registered trademark involving creator’s name or likeliness. Section 37 of the Trademarks Act, 1999 allows assignment and transmission of trademarks. Nonetheless, the transfers mentioned in Sections 40-42 are those that would deceive the public or create confusion regarding the brand’s identity or continuity. In case the creator steps back from the company after the acquisition, they still cannot be a part of the brand with their name which would encroach upon their rights under these provisions.

Additionally, the commercialization of the brand comes with complexities. Traditional transactions are based on point-to-point valuations, whereas in this case, the value is established through various metrics, such as the number of people interacting with the brand, the loyalty of followers, and their perception of the brand. The metrics used for the latter do not correspond to any standard assessments covered by the existing financial regulations. Skilful auditors and due diligence practitioners are obligated to make judgments on the evolving digital metrics that may not pass the objectivity test, according to the Institute of Chartered Accountants of India (ICAI) guidelines, thus making the risk assessment very much dependent on these metrics.

Furthermore, the creator’s activities that result in contingent liabilities, such as defamation lawsuits, breaches of sponsorship agreements, or online controversies, may not be reflected in the financial statements but can significantly influence the post-acquisition value. The absence of statutory regulations on treatment of risks associated with the brand’s reputation continues to cast dounts among buyers and investors. For example, the talks between MrBeast and Night Media regarding the splitting of equity were said to have dragged on due to differing views on the valuation of MrBeast’s personal brand in 2022.

Subsequently, the Competition Commission of India (“CCI”) applies the merger analysis of appreciable adverse effect on the competition under Sections 5 and 6 of the Competition Act, 2002, taking its cue from the merger of facts and market shares. In the creator economy, the upper hand does not have to rely on financial means, but it can be simply through social influence and capturing the audience. Numerous followers of a single influencer might actually have more power than an entire company when it comes to shaping consumer attitudes and perceptions of the brand. This scenario creates regulatory grey areas, where the true effects of such partnerships on digital markets and consumer freedom are difficult to evaluate.

Liability is yet another complication arising from these matters. Would the liability fall on the acquirer if the creator becomes involved in a controversy after the acquisition and the brand suffers? On the other hand, if a company’s loss is caused by the personal actions of the creator, can it seek protection? Such scenarios highlight the presence of a grey area between individual behavior and corporate accountability.

SUGGESTIONS AND CONCLUSION

The existing M&A frameworks are not applicable to the assets of personal or social capital. In assessing the current regulation, several issues can be raised. One of them is that legal reforms and doctrinal clarity can be achieved by treating goodwill as a business, related to intangible assets. The framework should clearly indicate the recognition of personality-driven goodwill, which comes from the reputation, influence, and trust of the audience as a valuable asset. Amendments to the Companies Act, 2013 and Ind AS 38 could specify criteria for identification, valuation, and transfer.

Moreover, Section 57A should be inserted in Trademark Act including Recognition and Protection of Personality Rights. For the said purpose, “personality rights” mean the exclusive rights of an individual over their name, likeness, voice, signature, image, or any other distinctive aspect of identity having commercial value. It shall be deemed to be recognised as intangible property capable of assignment, licensing, or transfer, subject to the limitations prescribed under this Act and any other law for the time being in force. Any commercial use may be recorded with the Registrar of Trademarks for public notice. Additionally, when acquiring a creator-driven entity, it should be mandatory to obtain explicit written consent, specifying the duration, scope, and mode of continued use of the creator’s name, likeness, or persona. Legal clarity is also required on whether acquirers bear vicarious liability for a creator’s post-acquisition misconduct or controversies. The main goal of the positive judicial guidance and model clauses is to create a balanced distribution of responsibility among the business and creator involved.

In addition to this, in conjunction with trends in commercialization and valuation innovations, promoters should also factor in social capital aspects, such as engagement rates, the integrity of the followers, sentiment integrity over time, and audience retention when estimating the creator’s worth. These metrics reveal the degree and power of the creator’s relationship with the audience, thus giving the main predictors for the post-acquisition value of a creator. The ICAI may turn this initiative into an opportunity to formulate specific guidance notes on how to regulate these indicators, which they can then employ as part of the due diligence process, while also planning for future assessments of fair value, thereby maintaining the comparability and audit reliability.

Another important aspect of the creator and the buyer’s agreement is the division of risks as per contract terms.

1. Earn-out clauses can provide the buyer with a structure for payments that ties the compensation to the creator’s ongoing brand success, mitigating the likelihood of an inflated valuation caused by temporary hype.
2. Morality clauses protect the acquirers by safeguarding the brand’s reputation from damage during controversies that impact the public’s perception of the brand and erode market confidence.

• License-back agreements provide the creator with continued control over personal identity attributes such as name, voice, or likeness. Collectively, these tools aim to achieve a fair and appropriate balance between creative autonomy and commercial certainty.

Additionally, dynamic valuation and audit disclosure systems should be merged into accounting practices. Creator-linked goodwill is subject to fluctuations according to the audience’s sentiment, changes in social media algorithms, or reordering of the content. Bringing such valuations into the scope of Ind AS 36 (Impairment of Assets) would enable periodic re-evaluation that properly records the reputation changes almost in real-time. This ensures that the investors and the regulators can together look through the mist, hence the valuations will be as fluid and driven by persona as the creator enterprises.

Furthermore, the institutional regulatory approach should be in line with the situation of an economy where the market power is influential. The CCI would have to broaden its analytical framework to include, amongst other things, the parameter of ‘dominance based on influence’, where for example, the creator-led conglomerate restricts the consumer’s choice and controls the digital traffic patterns. At the same time, the SEBI may consider a situation where personality-linked dependencies are disclosed as part of the filings by listed entities, especially in cases where the valuation or revenue of a company is very much reliant on individual creators. This sort of transparency would enable the investors to evaluate the risks of concentration and the possible governance exposure linked to personal brands.

In that direction, there is a parallel necessity for a strong inter-agency system. The Ministry of Corporate Affairs (MCA), SEBI, CCI, and Intellectual Property authorities may collaborate to issue comprehensive guidance for assessing, recording, and controlling personality-based transactions. The joint system mentioned above may be supported through the introduction of multi-disciplinary training and certification programs for valuers, auditors, and legal experts, which will thus contribute to greater standardization of practice and consistency at the regulatory level.

The regulatory approach, therefore, needs to shift its focus and move towards a human-centric M&A framework, where human capital, digital footprint, and reputation are recognized as legitimate and measurable factors of enterprise value. In this vein, India can offer a well-defined, futuristic policy framework that connects legal accuracy with the vibrant and ever-changing nature of the new digital marketplace.

INTRODUCTION: SILENCE UNDER THE INFORMATION UTILITY

In a recent case of Air Wave Technocrafts Private Limited vs Voltas Limited, the NCLAT refused the claim of the creditor, since the debts were time-barred, undermining the role of IU in the insolvency proceedings. The Insolvency and Bankruptcy Code, 2016 ( hereinafter “The Code”) was introduced with the objective of consolidating all the insolvency proceedings under one roof for both corporate and individuals with the aim of maximising the value of the assets. Section 9 of the Code clarifies the process by which a creditor initiates the corporate insolvency resolution process when the corporate debtor is unable to make timely payments. Later, Information Utility (hereinafter IU) was introduced to address the issue of the non-availability of financial information. The IU acts as a repository of the information that helps in preventing disputes and delays in the proceedings. However, there is a procedural gap where the debtor can withhold confirmation on financial information about the debt uploaded by the creditor, which can defeat the very objective of IU, to provide swift insolvency proceedings.

Can a mechanism within the institution that is limited to verification but lacks any legally meaningful effect contribute substantively to being the evidentiary basis of an insolvency system?

This blog will Firstly, critically examine the limited role of IU under the insolvency proceedings, Secondly, analyse how the IU confirmation gap enables the debtor from defeating the core promises of swift insolvency proceedings, Thirdly, global comparison of the framework regarding debt acknowledgement, Lastly, it suggests reforms to give IU authentication a legal and meaningful effect without hampering the debtor’s right.

WHEN VERIFICATION FELL SHORT: THE IU DISCONNECT

The introduction of the Information Utility under the Insolvency and Bankruptcy Code, 2016, demonstrates a deliberate effort by the legislation to mitigate information asymmetry in insolvency proceedings. Sections 213 to 216 of the code regulate the submission of the information and its method of submission, as well as the rights and obligations of the person uploading the information. However, the statutory language indicates that the information utility was not intended to function as a determining authority but as a facilitator for factual clarity regarding the debt information to help the adjudicating authority regarding the proceedings under Sections 7, 9 and 10 of the Code. Regulation 21 of the IBBI (Information Utilities) Regulations, 2017 (hereinafter “The Regulations”) provides the framework to update the status of authentication of the information to be recorded by the IU.  The lacuna lies in the table given under Regulation 21 to update the status of authentication of information. At first, if the information uploaded by the creditor is confirmed by the debtor, then its status will be updated to Authenticated, and the same can be used as evidence in the proceedings. Secondly, if the debtor disputes the information, the status will be updated to Disputed. Everything seems fair till here, but at the last stage, when the debtor doesn’t respond even after three reminders, the status will be updated to deemed to be Authenticated, and the same serves no purpose in making the proceedings swift. It has been a consistent trend in tribunals, where the information having the status of deemed to be authenticated is not given much weight, and it is considered that the silence of the debtor can’t create legal consequences unless the statute explicitly provides. The information submission is a unilateral process by the creditor, and the same can’t be imposed upon the debtor. In the absence of any authoritative mechanism to require a debtor to either confirm or dispute the uploaded information by the creditor, the IU framework undermines its own objective of a participatory information mechanism and functions as a largely one-sided repository of creditor data. By allowing debtor silence to carry no legal consequence, the IU framework enables strategic delay and misuse when viewed through the lens of the Limitation law.

THE STRATEGIC USE OF NON-CONFIRMATION AND LIMITATION

While IU authentication facilitates evidentiary clarity, it cannot be equated with acknowledgement under Section 18 of the Limitation Act, 1963, unless a legislative consequence is attached. The framework governing the IU provides three options to the debtor in response to the information uploaded by the creditor: confirmation, Dispute, or Silence. While the former two options come with certain procedural outcomes, holding silence over the information has no consequences. This system enables the corporate debtor to strategically abstain from engaging in the IU proceedings by neither confirming nor disputing the debt information, thereby safeguarding the potential legal defences for the future.  The non-confirmation is used to escape from the debt liability through the provisions of the Limitation Act, 1963, as section 18 requires a written and signed acknowledgement to revive the time limit and to revive the limit under section 19, there should be payment (Half or full) or payment of interest on a debt before the expiration of the limitation time period. The debtor deliberately chooses not to respond, to ensure that no acknowledgment of the debt is created, the limitation period is not extended or revived, and a time-barred defence remains available at the stage of insolvency proceedings. In the recent case of Air Wave Technocrafts Private Limited vs Voltas Limited, the creditor had uploaded the information of the debt on the IU, but it was neither acknowledged nor disputed by the debtor. Later, during the insolvency proceedings, reliance was placed on the information uploaded on IU; however, the Hon’ble Tribunal rejected the creditor’s contention, stating that mere administrative filing of the information without an acknowledgement from the debtor does not extend the limitation period under the Limitation Act, 1963. The exploitation of non-confirmation highlights a systemic inconsistency between IU processes and the law of limitation. A brief comparative analysis highlights how consequences are attached to inaction in more mature systems.

GLOBAL COMPARISON: CONSEQUENCES OF SILENCE

Global insolvency practice suggests a clear principle: debtor silence must carry consequences. The approaches adopted in the United States and Singapore stand in sharp contrast to India’s IU regime

Under the U.S. Bankruptcy system, 11 U.S. Code § 502 states that a claim or interest is allowed after the creditor has filed proof of the claim, unless the debtor disputes it. In this system, the debtor gets a chance to dispute the claim, but there is no option of being silent on the claim without any adverse action. This keeps the debtor active in proceedings, since failure to comply with the procedure within a time frame can have significant legal consequences, such as the claim being allowed by default.

Under the Insolvency, Restructuring and Dissolution Act 2018 of Singapore, Section 312 of the act provides a 21-day timeline for the debtor to respond after a statutory demand is served by the creditor, adhering to the prescribed manner. If the debtor has neither complied with it nor applied to the court to set it aside, then the debtor is presumed to be unable to pay the debt within the meaning of Section 311 (1) c. The grounds for a bankruptcy application are given under Section 311 of the Act, and non-compliance or ignorance of the debtor regarding statutory demand can be a ground for insolvency proceedings, which enables the creditor to move forward with the insolvency proceedings.

The examination of rules regarding silence on debt from the jurisdictions of the United States and Singapore, and then juxtaposing them with Indian’s Information Utility provisions, reveals that the latter is unusual to the extent of having no consequences for silence. The framework in the US and Singapore is not similar to that of the Information Utility in India, but can be considered as a counterpart for the same.

WAY FORWARD: BRIDGING THE IU GAP

The deficiencies exposed in the current Information Utility framework call not for its abandonment, but for calibrated procedural reforms that assign meaningful consequences to debtor inaction without diluting statutory safeguards.

The first and foremost practical procedural reformation could be adding proof of the debt while submitting the information about on IU, as it will help the creditor at a later stage. In the next procedural overhaul, there should be an amendment under Regulation 21 of the IU Regulations, 2017, having certain consequences for the strategic abstention from responding to the creditor’s claim, hence compelling the debtor to either confirm or dispute the claim, leading to swift insolvency proceedings. When the debtor chooses not to respond after the definite timeline, the rebuttable presumption of correctness will be created favouring the creditor, and the same is not equated with acknowledgement within the meaning of section 18 of the Limitation Act, 1963.  The presumption is made rebuttable to safeguard the interest of the debtor, so it can be challenged by the debtor during the proceedings with substantial proof. At last, a clear judicial pronouncement will be beneficial in removing the irregularities in the current framework.

Bridging this gap is essential for the IBC to truly achieve its goal of a swift and efficient insolvency resolution process.

Introduction

India’s growth is continuously rising despite of U.S tariff on the Indian economy as recently International Monetary Fund in its World Economic Outlook report released in October 2025 has stated “India’s GDP will grow faster than estimated earlier despite the impact of US tariffs on Indian economy” also it showed “India’s GDP growth rate for 2025-26 at 6.6 percent versus 6.4 per cent earlier. But the IMF has lowered its estimates by 20 basis points to 6.2 per cent for 2026-27.” While all these geopolitical incidents are going on in background India’s insolvency landscape is witnessing a noticeable rise in technology-based companies struggling with financial distress and especially after the sharp funding slowdown across the startup ecosystem. The Insolvency and Bankruptcy Board of India (IBBI) quarterly newsletter for April-June 2025 reports that 8,492 corporate insolvency resolution processes (CIRPs) have been admitted since the Code was introduced, as per Table 1 of the newsletter, it also presents sectoral distribution data for admission, appeal, review, settled, withdrawn and resolution plans. According to the same newsletter, it shows that IT, software, digital services, and technology-enabled companies form a significant share of all admitted cases, as illustrated in Figure 3 on Page 5. Moreover, it also states the mode of closure which shows that 57% of all closed CIRPs resulted in rescue outcomes such as resolution, settlement, or withdrawal, based on Figure 2 on the same page and all these figures indicate a growing space for investors and buyers to acquire distressed companies under the Insolvency and Bankruptcy Code (IBC), 2016. With tech development, India’s startups are also growing. Still, the major concern is that over 28,000 startups in India closed their doors in 2023-2024 as a result of financial problems which indicates the severity of struggles by India’s startup ecosystem additionally 23,000 workers were laid off across by nearly 82 Indian startups as the funding winter intensified and this led to noticeable uptick in distressed technology acquisitions as more investors utilise the IBC route to acquire struggling tech companies, as distress grows and digital assets become more affordable.

Rise of Distress in Tech Companies

India’s growing financial distress in the tech industry is increasing day by day, as technology companies in India are closely linked to the slowdown in private capital and changing market conditions. As reported by Business Standard that startup funding in India dropped by 72% in 2023 by further stating that “the funding had declined across all stages, with late-stage funding dropping over 73 per cent, followed by early-stage funding (70 per cent) and seed-stage funding (60 per cent). With this, India’s global ranking also dropped a place to 5th position in the list of the highest-funded geographies globally in 2023” which marks one of the sharpest contractions in the past few years. This decline directly affected the early-stage and growth-stage of tech-driven firms, which depend heavily on external investment to sustain their business operations. With a reduced amount of capital and limited funding availability from other sources, many tech companies are struggling to meet their recurring expenses, such as cloud infrastructure costs, software development expenses, and vendor payments, which increases the risk of default. In addition to this weaker funding, the technology industry as a whole experienced strong consolidation pressure. As per the Nasscom – Startup Report 2024, “funding fell to about USD 6 billion in 2023, a drop of nearly 67%, and tech-startup M&A activity declined by around 50%”. This contention is also supported by the KPMG Startup Ecosystem Report 2024, which similarly reports that many acquisitions in 2023 happened due to financial stress and rising operational costs and these conditions made several tech firms more vulnerable to creditor action and increased their presence in the IBC process.

Role of Digital Platforms and Market Trends in IBC Tech Acquisitions

The process of acquiring distressed tech companies under the IBC has been strongly supported by digital platforms. As the IBBI’s liquidation auction portal displays over 8,300 auction related records which includes auction notices and corrigenda, which shows the extensive use of e-auction system for felling assets under insolvency. These online platforms provide transparency and help investors which includes tech focused buyers also to ascertain and put their bid for assets efficiently. At the same time, global technology deal activity has remained steady as the EY Technology Services M&A Report 2023 states that over 740 tech-services M&A transactions in 2023 by highlighting sustained investor interest even in a weak market and this digital transparency under IBC and continued global demand for tech assets have made distressed technology acquisitions more attractive to investors in India.

Why Investors Prefer Acquiring Technology Companies Through the IBC Process

Investors are increasingly preferring to acquire distressed technology companies through the IBC because it offers clarity in legal protection and lower commercial risk compared to traditional negotiations. One of the major advantages is that acquisitions under the IBC provide a “clean slate,” as the National Company Law Tribunal (NCLT) approves the resolution plan and extinguishes past liabilities unless specifically included, and this gives a buyer a greater certainty. The Grant Thornton Annual Dealtracker, 2023 report states that India recorded 1,641 deals in 2023, with a total value of about USD 65.9 billion and in which technology-linked sectors remained active despite an overall decline in deal values, which indicates that investors are interested in technology assets has stayed strong even during weaker market conditions.

Another report by McKinsey’s “Cracking the Digital Code” further support this trend as it notes that 71% of global executives expect digital initiatives to increase company revenues over the next three years, and nearly half report that CEOs now directly sponsor digital programs, reflecting growing strategic importance because digital capabilities which have become very essential for acquiring distressed tech firms through the IBC allows investors to obtain platforms, software, and talent at a lower cost and with greater legal certainty. This combination of legal clarity, digital demand, and investor confidence has made IBC-driven tech acquisitions increasingly attractive in India.

Key Challenges in Acquiring Distressed Technology Companies

Despite growing interest in acquiring distressed technology companies under the IBC framework comes with several difficulties like ascertaining the value digital assets. Unlike physical assets the worth of software, intellectual property, user data and algorithms depends on usage, scalability and future revenue which make valuation highly subjective case to case basis as these assets do not have fixed market value. The report by KPMG, “KPMG M&A Outlook 2025” shows that valuation gaps are one the major reason for deal failure, cited by 34% of surveyed dealmakers which highlights how difficult it is for buyers and sellers to agree on the value of technology-driven companies and this challenge becomes even sharper in distressed cases where future revenue, , user retention, and product stability are uncertain. Another major issue is retention of key employees, as distressed tech firms often lose developers, engineers and product architects during insolvency proceedings which was also highlighted by The Deloitte Tech Trends 2025 report which notes that organisations face a persistent skills gap especially in advanced digital areas like AI, cloud and cybersecurity which makes it harder for buyers to stabilise a distressed tech business after acquisition. Additionally, compliance with Digital Personal Data Protection Act, 2023 which was notified on 14 November 2025 by the government adds pressure on investors because distressed tech companies often handle sensitive user data. These challenges show that while IBC provides a structured route for acquiring distressed tech companies and buyers still need to carefully assess valuation, talent stability and regulatory risks.

Future Prospects for Distressed Technology Acquisitions in India

The outlook for the distressed technology acquisitions under the IBC is positive because both market demand for tech and deal activity support such transactions. As per NASSCOM’s Strategic Review 2025, the Indian tech industry reached about USD 282.6 billion in FY2025 (including hardware) and is expected to approach USD 300 billion by FY2026 with exports of roughly USD 224.4 billion and growing domestic tech spending as all of which keep technology assets strategically valuable for buyers. At the same time, PwC in its mid-year analysis of both global and India shows that while global M&A volumes fell 9% in H1 2025 versus H1 2024, deal values rose 15% India’s deal volumes increased around 18%, with the TMT sector remaining active which mean trend is still strong buyer interest in tech assets even in uncertain markets. Taken together these rising long term demand for digital capabilities and ongoing deal activity make the IBC an increasingly viable route for acquiring distressed tech firms and provided buyers manage valuation, talent and data risks carefully.

Conclusion

The rise in distressed technology acquisitions under the IBC reflects both the pressures and the evolving opportunities in India’s digital economy but with slowdown in fundings, valuation gaps and operational challenges have pushed many tech companies toward financial distress still IBC continues to offer a predictable and transparent route for their revival or sale. Investors are drawn to this process because it provides clearer legal protection and cleaner ownership transfer and access to valuable digital assets at more reasonable costs. Simultaneously, India’s tech sector continues to grow and supported by long-term digital demand highlighted in recent NASSCOM reviews and global deal activity remains steady even amid uncertainty as shown in PwC’s 2025 outlook. We need improvements in digital auctions, better information systems and stronger regulatory oversight for making IBC transactions more efficient. While another challenge like employee retention, digital-asset valuation and data-compliance risks remain but overall ecosystem is becoming more investor-friendly and distressed technology acquisitions under the IBC are likely to play an increasingly important role in future market consolidation and technological development.

Introduction
The concept of corporate personality is one of the principles of corporate law, which recognizes a corporation as a separate legal personality independent of its shareholders. One of the first representatives of this doctrine can be traced in the judgment of Solomon v. Solomon & Co. Ltd. The doctrine places emphasis on the concept of limited liability and eases capital formation. However, at times of corporate separateness, which is used to distort trust, avoid liability, and commit fraud, the courts can lift the veil of incorporation to determine the actual culprits. The main issue of the modern practice is how to balance the freedom that corporate structures provide with the necessity of accountability, especially in multinationals and financial institutions that use complex corporate structures to evade liability.

The decision made by the Bombay High Court in Anil Ambani v. State Bank of India (SBI) has brought back this debate. The Court affirmed that SBI had correctly ruled that Reliance Communications and its chairman at the time, Anil Ambani, were defraudulent borrowers. It reiterated that promotion cannot be held responsible in cases where the lenders have been misled using the corporate structures when the promoters have limited liability. The following paper aims at tracing the development of the doctrine, examining the rationale of the court and evaluating the current applicability of these doctrines in the context of the Companies Act, 2013. It also strives to depict the changing corporate governance situation in India.

Evolution of the Corporate Veil
The corporate veil doctrine originated in the case of Solomon, which held that once a company is incorporated, it attains a legal personality which is distinct from its members. Indian jurisprudence has also adopted this stance by incorporating several amendments and judicial pronouncements. In addition to this, the Indian courts have long recognised the exceptions where the concept of justice demands the lifting of the veil. In State of UP v. Renusagar Power Co., the court treated Renusagar and Hindalco as a single economic entity for taxation, placing its reliance on the need to prevent artificial separation.

Various provisions in the Companies Act, 2013, have codified provisions where the directors and officers may be held liable, specifically recognising the veil-lifting principles. Section 2(60) defines “officer in default” covering those persons who give consent or take part in misconduct. Section 339 provides for personal liability in case of fraudulent conduct of business during winding up, while Section 447 places punishment for fraud. Further, Rule 11 of the Companies (Accounts) Rules, 2014 mandates that a detailed disclosure of related-party transactions must be provided to curb the misuse of complex corporate webs. Thus, while the corporate veil remains a functional safety to hide behind, statutory developments have widened its scope in cases where the veil can be pierced. This is done particularly in the cases of fraud, public interest and misuse of limited liability.

The Anil Ambani v. State Bank of India Case
In Anil Ambani v. State Bank of India, the petitioner challenged the decision of SBI to declare Reliance Communications (RCom) and the petitioner as a fraudulent borrower under the Master Directions on Frauds, 2016 issued by the Reserve Bank of India. SBI accused RCom of misrepresenting and stealing money that was sanctioned to the company and breaking the covenant of the loan agreement. Ambani argued that the classification breached the natural justice and unjustly charged him with the misconduct of the corporation, even though the legal entity called RCom was independent.

The Division Bench of Justices Nitin Jamdar and M.M. Sathaye rejected the petition as their classification relied on an in-house forensic audit that revealed that there was substantial misrepresentation. The Court observed that in the role of a chairman and guarantor, Ambani could not dissociate himself with the actions of the corporate body in which the decision-making process was signed and monitored by him. The case decision was similar to the pattern used in Delhi Development Authority v. Skipper Construction Co., in which the Supreme Court determined that the veil can be lifted when the corporate form is employed to avoid the will of the people or commit fraud.

Notably, the logic of the High Court went beyond the technicality of the proceedings. It has not seen the doctrine of limited liability as a promoter shield, but as an obligation bound by disclosure and honesty in financial transactions. It is a demonstration of judicial restraint and accountability in the corporate realm, and the Court declining to intervene in the judgment of the bank and instead leaving regulatory autonomy to regulators.

Critical Analysis

1. Increasing the Functional Scope of Veil-Lifting.
   The Court implicitly accepted that the two issues of promoter actions and corporate governance failures are inseparable by admitting the legality of the fraud categorization. This operational model adopted that a company being distinct does not imply that its officers should not be liable to the acts committed on their knowledge or consent. The rationale of the High Court in this case is in line with Section 339(1) of Companies Act that allows courts to pronounce all those who knowingly carry on business with the view of defrauding as personally liable to company debts.

   In this connection, the Anil Ambani case can be interpreted as a case of de facto interpretation of Section 339, but in the context of banking regulation. The ruling is also in touch with Section 447 of the fraud and Section 36(c) of the RBI Act, 1934, which gives the bank the authority to take action against any fraudulent transaction.

2. Accountability Gap and Corporate Governance.
   India has faced numerous criticisms on its corporate landscape that remain timeless, the so-called, promoter-based model of governance in which management and ownership are frequently confused. In conglomerates such as the Reliance Group, authority on making decisions is highly concentrated on the promoter family hence it is hard to distinguish between personal and corporate will. The position of the Court fills this accountability void in that where promoters act directly to affect financial decision-making and enjoy the fruits of such decision-making, they cannot claim corporate veil to escape analysis.

   This reading is in line with the English Court of Appeal case of Gilford Motor Co. v. Horne, when the English Court of Appeal lifted the veil to allow a director to avoid the non-compete covenant by the company. In a similar case of New Horizons Ltd. v. Union of India, the Supreme court of India also discussed the actual character of a consortium company to ascertain the control and responsibility. These precedents argue in favor of the fact that form should be subservient to substance where the corporate organization is only a facade.

3. Implications and Due Process Concerns Regulations.
   Although the ruling enhances accountability, it also brings up the issue of procedural fairness in the classification of fraud. RBI Master Directions permit the banks to label borrowers as fraudulent by a judicial ruling, which impacts reputations and credit access. Criticisms state that such powers might result in overreach, which highers the presumption of innocence. Nevertheless, the fact that the Court did not review the decision of SBI vigorously highlights the fact that judicial system acknowledges that the regulator is well-informed in avoiding large-scale defaults to the banking system.

Contemporary Relevance
The ruling is also made when financial regulators in India are under mounting pressure to deal with willful defaults and misconduct of promoters. Certain big business entities were put under the microscope in 2024 alone, in terms of the Insolvency and Bankruptcy Code (IBC) and the Prevention of Money Laundering Act (PMLA). The Anil Ambani case is a decision that conforms to the judicial logic to a wider policy discourse of the government to exercise responsive capitalism.

Conclusion
The principle of the corporate veil remains one of the pillars of corporate jurisdiction; however, its invincibility is not unconditional. The decision in Anil Ambani v. State Bank of India represents a jurisprudence change of protection of entities to accountability enforcement. By placing the unveiling of the veil in the context of the wider financial regulation, the Bombay High Court has indicated that corporate structures cannot be used to absolve the promoters of the consequences of their actions. To this end, the modern-day corporate veil cannot be understood as an invulnerable shield but instead seen as a transparent veil that only protects the business as long as integrity and governance prevail in it.

Introduction
The Ministry of Corporate Affairs (“MCA”) has just expanded the Fast Track Merger (“FTM”) route under Section 233 of the Companies Act, 2013, by releasing the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025, amending Rule 25 of the 2016 rules that govern mergers and restructuring under the Act. As a result, the frameworks for Indian corporate mergers and restructuring are entering a new era of being faster, more efficient, and more transparent.

The foundation stone for the simplified FTM process in reverse flip transactions was already set by the 2024 amendment to the rules, which made the procedural requirements easy and expanded the ‘small company’ thresholds to allow Indian private holding companies to undertake FTM with their Indian subsidiary. And the 2025 reforms have made it even more business-friendly by removing the classification hurdles after expanding the FTM route open for use to newer classified entities. Moreover, by introducing the responsibilities of the auditors and companies, the amendment fosters a culture of self-regulation and disclosure in the corporate landscape.

The next sections of this article will reveal how the merger landscape in India has changed with the 2025 amendment, who can use the FTM route now, how the process has been made easier, and why the auditor is more responsible now to ensure that everything is in place correctly. It will also explain how the governance regulations of the Securities and Exchange Board of India (“SEBI”) and the Reserve Bank of India’s (“RBI”) regulations for overseas investment collectively make the merger process clearer, and how drawing a comparison with the merger models of the United Kingdom (“UK”), Singapore, and the United States (“US”) shows that the 2025 Indian reforms bring the nation closer to top international standards while fostering openness, accountability, and investor trust.

Need for the Amendment: Practical Gaps in the Existing FTM Framework
The FTM route under Section 233 was formulated as an enabling process to make merging easier, yet it was restricted to two main categories, i.e., mergers between two or more small companies and between a holding company and its wholly owned subsidiary. Because large unlisted and holding companies were left out, they had to rely on the lengthier National Company Law Tribunal (“NCLT”) route under Section 232.

Facts from recent internal restructurings of big groups like Vedanta Ltd. have already shown how procedural logjams and tribunal reliance can hold back even the most harmonious and financially healthy businesses. Similarly, in 2024, some Indian startups involved in cross-border mergers and reverse flip transactions highlighted the need for a speedy, less rigid, smaller tribunal-centric regime, and the same was reported to the MCA by an industry group known as the Startup Policy Forum (“SPF”), which represents 50 new-age companies.

In light of these industry realities, the amendment changes the rules significantly by introducing a new sub-clause to Rule 25 (1A), which is the FTM route that is now opened up to a wider set of companies. Any unlisted company, except for Section 8 companies, holding companies, and their subsidiaries, whether listed or unlisted, is now allowed to use this route if their total outstanding debt, which includes loans, debentures, or deposits, is not more than ₹200 crore and has no default on borrowings.

The Evolving Landscape of Fast-Track Mergers
The prima facie and most emphasised part of this amendment is the expanded scope of the FTM route. But the less paid-attention-to yet crucial objective of the reform is to bring accountability and transparency into it, and not just to enhance the speed and simplify the merger process. As this commendable reform substituted the long and time-consuming NCLT’s oversight with a Regional Director (“RD”) supervision, it is a transition based on professional accountability (Note: it applies to the FTM route under Section 233 only and not to all merger schemes). Instead of tribunal there is a strategic dependence on company auditors, as such auditors are given the responsibility of thoroughly checking and confirming that companies follow financial and legal regulations, thus allowing for the early identification of issues that can be dealt with beforehand, hence shareholders and creditors being more protected. This shifts the system toward self-regulation, combining faster decisions with greater accountability and transparency.

Comparative Perspective: Aligning with Global Best Practices
The restructuring frameworks at the global level have been made very simple and easy to comply with. For instance, in the UK, the merger and reconstruction processes are governed by Sections 895-901 of the Companies Act, 2006 (Part 26), and the court plays a supervisory role, which is streamlined and less time-consuming. The main idea here is to promote ease of doing business and let companies reorganise internally without going through lengthy processes. Likewise, in Singapore, Section 210 of the Companies Act 1967 contains provisions for the pre-packaged schemes, where the terms of merger are decided and agreed in advance, and the court mainly gives final approval after the required majority of the members approves the merger, which in return helps save time and cost.

In the US, specifically under Delaware law, there is a concept of short-form merger governed by Section 253 (applies when the parent owns at least 90% of the subsidiary) of the Delaware General Corporation Law (DGCL), wherein a merger between a parent company and its wholly owned subsidiary is permitted without having approval from the shareholders, making the process seamless and fast.

After doing a comparative analysis of these jurisdictions with India, it can be seen that the FTM process under section 233 of the act relies on a system that is driven by regulation at multi-tiers. Whereas in jurisdictions like the UK and Singapore, courts are involved primarily to ensure fairness; moreover, the process is simpler in Delaware, as they do not even require approval in certain situations. In contrast, in India it is required to carry out detailed inspections by the RD, Registrar of Companies, and Official Liquidators. This becomes the reason why the processes are layered since each authority goes through the mergers thoroughly from all possible perspectives before approving.

Policy Linkages and the Road Ahead for Corporate Restructuring
The scope of the expanded FTM route is going to be complemented by the parallel reforms from SEBI and RBI. Both of the regulations are quintessential in a merger process, which collectively creates a pro-business environment for domestic and cross-border transactions. Specifically, the SEBI regulations ensure that the companies using the FTM route are internally accountable, which supports the shift toward self-regulation. So, for example, as per Regulation 17(1)(c) of the (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”), the largest 2000 listed companies now must have a board of at least six directors, including a balanced mix, meaning the board should consist of executives, non-executives, and independent directors who bring a variety of skills and experiences to the table. Executive directors can effectively manage the day-to-day operations, and the non-executive and independent directors can provide the unbiased and fair decision-making needed to propel the company in the right direction. With at least half of the board made up of non-executive directors, it is also crucial that they can step back from the hands-on management and stimulate more autonomous decision-making.

In accordance with Regulation 17(1A), shareholder consent (special resolution) is required when appointing a non-executive director who is seventy-five years old, plus Regulation 17A prohibits anyone from occupying directorship roles in multiple listed companies beyond the permitted limit of seven or three, as the case may be. This suite of regulations is intended to boost up investor faith in the company’s board and help create boards that are completely transparent and expertly manage their companies through takeovers and other strategic moves.

The recent SEBI amendments focus on Related Party Transactions (“RPT”), which are sometimes the cause for operational delays (because for every RPT, it needed multiple approvals from the audit committee and shareholders before execution). Rather than having to obtain approval for every such transaction, the revised Regulations 23 and 2(1)(zb) of the LODR allow for a more reasonable, scale-based approach. In other words, the smaller, more routine transactions will not require approval, and only the larger, more significant ones will require a vote. This reform is reasonable because it avoids needless delays in the approval process and takes investor interests into account.

Furthermore, to help companies looking to grow internationally, the RBI brought the Foreign Exchange Management (Overseas Investment) Rules, 2022, which replaced the older frameworks Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations 2004 and Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015. These earlier regulations outlined the ways Indian companies could invest overseas, acquire foreign businesses, establish subsidiaries or joint ventures, and buy assets outside India’s borders. The updated rules have made it easier to get approvals that used to hold up cross-border mergers and acquisitions. With this change, regulators have made it easier for Indian companies to grow internationally by striking a balance between liberalisation and appropriate oversight.

In the same manner, Regulation 9 of the Foreign Exchange Management (Cross Border Merger) Regulations, 2018, introduced by the RBI, provided the concept of “deemed approval” for mergers between Indian firms and their foreign subsidiaries. Where the conditions prescribed under these regulations are complied with, such transactions shall be deemed to have the approval of the Reserve Bank of India. It makes the process easier by allowing the RBI to clear a transaction right away as long as the specific merger guidelines are followed, removing the need for individual case-by-case approval.

Conclusion
The amendment gives businesses a very friendly but streamlined process by letting them use the FTM mechanism in Section 233. At the same time, it gives regulators and auditors greater authority by making businesses responsible for their actions. The NCLT used to have the power to supervise, but now that power is being transferred to how business works instead of staying an external force.

Besides, the amendment indicates that the frameworks connected with the ease of doing business have become attractive to domestic and foreign investors alike, which corresponds to international best practices. It is obvious that the auditors’ and regulators’ effectiveness in enforcing these provisions will be the factor that determines the success of this amendment. Good administration, coordination among authorities, and clear procedures are also some of the factors that will decide how smoothly the system works. But if the same is followed effectively, it will make it transaction-friendly, boost trust, and transform India’s corporate sector into a competitive and attractive place for investments.