– Payal Agarwal and Sourish Kundu | corplaw@vinodkothari.com
Since its inception in 2019, proposals were in discussion for bringing an alignment between the new brought noble concept of Social Stock Exchanges (“SSEs”) with the existing, well-recognised statutorily-laid social obligations on companies, viz., Corporate Social Responsibility (CSR) under the Companies Act. However, the concept of SSE and NPOs listed thereunder, introduced in 2022, continued to remain severed from the very mandated provision of social spending under Section 135, until now, since the proposal required sanction of the MCA.
The MCA, vide Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026 (“Amendment Rules”) on May 27, 2026, has introduced an enabling framework permitting subscription to Zero Coupon Zero Principal Instruments (“ZCZPIs”), that is, the instruments issued by eligible Not-for-Profit Organisations (“NPOs”) listed on SSEs as an eligible means of fulfilling CSR spending obligations.
Understanding Zero Coupon Zero Principal Instruments
NPOs registered on SSEs are permitted to raise funds exclusively through issuance of ZCZPIs . These are essentially donations in the form of securities (ZCZPI is recognised as a security under SCRA). As the name suggests, ZCZPIs will never repay back the principal, or pay any interest, either during or at the end of the tenure of the instrument. These are responsible donations in the sense that the NPO raising funds through ZCZPIs on the SSE is required to comply with stricter norms and disclosure requirements. [Read more here]
CSR through ZCZPIs: things to know
The Amendment Rules refer to various conditions and relaxations w.r.t. CSR through subscription to ZCZPIs:
A maximum cap of 10% of an entity’s total CSR obligation during a year, has been specified for undertaking CSR through ZCZP Bonds.
Exemption from undertaking impact assessment of the projects being funded through such issuance.
Further, exemption has been granted to the management of a company investing in ZCZP Bonds, to satisfy itself of the appropriate utilisation of the amount disbursed, and certification by CFO in that regard, in addition to the requirement of continuous monitoring of ongoing projects.
This may be based on the rationale that Regulation 91F of the Listing Regulations already mandates a statement of utilization of funds to be submitted to SSEs, by the NPOs on a quarterly basis within 45 days from the end of a quarter, hence the purpose of monitoring and assessment is already satisfied.
Further, not all ZCZPIs are eligible CSR expenditure. A ZCZPI would be considered eligible for CSR purpose, only if the following conditions are satisfied:
the duration of the project undertaken through the instrument should not exceed 3 succeeding FYs from the date of issuance of the ZCZP Bonds; and
upon termination of listing of the ZCZP Bonds, any unspent amount is required to be transferred to a fund specified under Schedule VII to the Act, with a compliance report thereof to be submitted to SEBI.
The conditions are, thus, similar to those applicable to ongoing projects under CSR.
Conclusion
The regulators have been making continuous efforts towards making the SSE concept in India a success. While there are registered NPOs on the SSE, in order to boost issuance of ZCZPIs, SEBI has made it mandatory for registered NPOs to bring listed ZCZPIs within a maximum of 2 years from registration on SSEs. The Amendment Rules mark an interesting development pursuant to SEBI’s recommendation to the Ministry of Finance for recognition of ZCZPIs within the CSR framework, thus attempting to build a demand for the ZCZPIs.
While the move is clearly intended to create greater synergy between the CSR ecosystem and the SSE framework, its practical effectiveness remains to be seen.
This becomes particularly relevant considering that, since 2022, the quantum of funds mobilised by NPOs via SSE is significantly lower than the CSR spending during the same period. The true impact of the amendment would therefore depend on whether the recognition of ZCZP Bonds as an eligible CSR avenue is able to meaningfully channel corporate CSR capital towards the SSE ecosystem and improve participation therein.
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2026-05-30 10:16:122026-05-30 10:18:49CSR through ZCZP Bonds: MCA unveils new route for social finance
In line with an overhaul of changes proposed in the Companies Act, 2013, the Corporate Laws (Amendment) Bill proposes some changes in the Limited Liability Partnership (LLP) Act, 2008. Aimed at greater ease of doing business for corporates, the proposals are dominated by provisions to recognise LLPs operating in International Financial Services Centres by allowing them to issue and maintain share capital in foreign currency as permitted by the International Financial Services Centres Authority . Further, decriminalisation of various procedural defaults under the LLP Act have been provided for by replacing criminal provisions with civil penalties, , and easing compliances for Alternative Investment Funds which are formed asLLPs.
Following definitions added:
IFSC and IFSCA inserted and aligned with definition in International Financial Services Centres Authority Act, 2019
“Permitted foreign currency” to be specified by IFSCA in consultation with CG
“Specified IFSC LLP” meaning an LLP set up in an IFSC, and regulated by IFSCA
To facilitate LLPs operating in International Financial Services Centres allowing them to issue and maintain share capital in foreign currency
Specified IFSC LLPs
Registered office to be in IFSC
“IFSC LLP” to form part of its name.
If any LLP is regulated by SEBI or IFSC, primarily meaning AIFs:
Details of changes in partners to be furnished to the Registrar annually.
Manner of filing changes in LLP Agreement to be prescribed.
Monetary value of contribution by partner in Specified IFSC LLP to be accounted for and disclosed only in permitted foreign currency and any prior contribution also to be converted to such foreign currency.
Subsequent monetary contribution not allowed without converting the same into permitted foreign currency.
To prepare its books and records in the permitted foreign currency, however, may be allowed to prepare in INR, if permitted by IFSCA. [Section 34(1)]
Specified IFSC LLPs may be required to use permitted foreign current for filings under this Act, however, payment of fees/fines/penalties, to be made in INR. [Section 68]
Incorporation/Conversion of/into LLP
Changes in the LLP agreement, names and other details of partner of those LLPs regulated by SEBI or IFSCA to be intimated as may be prescribed i
Requirement of compliance statement by advocate/CS/CA/CMA replaced by the requirement of an affidavit, only in cases where such professional is engaged
Specified IFSC LLP to state its objects of financial service activities as per Section 3(1)(e) of IFSC Authority Act, 2019
Enabling provisions for conversion of a specified trust, established under Indian Trusts Act, 1882 or Central/State Act and registered by SEBI/IFSCA, having prescribed activities. primarily aimed at AIFs formed as trust, to convert into LLPs. [Sections 57A and 58]
Adjudication and Penalties
Decriminalising extant provisions providing for punishment with:
Fine of Rs. 2,000-25,000 for failure to comply with Registrar’s summons/requisition to a penalty of Rs. 10,000 for failing to comply with any requisition of Registrar (other than summons). [Section 38(4)]
Fine of Rs. 25,000-5,00,000 for LLP, and Rs. 10,000-1,00,000 for every DP, for failure to comply with requirements of maintenance of accounts, and annual Statement of Account and Solvency to Rs. 100/day upto Rs. 1,00,000 for LLP, and Rs. 50,000 for DP.
LLP/Partner/DP expressly permitted to make application suo moto for adjudication of penalty.
For failure to comply with any requisition of the Registrar, penal actions will apply instead of fine
From the commencement of the proposed legislation, where a provision in respect of any offence provided in LLP Act has been amended to provide for adjudication under the said section, the manner of withdrawal of the complaint and the manner of transfer of such matter for adjudication under such section, whether pending in the Court or otherwise, shall be dealt with in accordance with such Scheme as may be notified by the Central Government.
Appeal allowed against decision of Registrar regarding name reservation (Section 16) or declining to incorporate LLP (Section 12). [Section 68B]
Valuation
Provisions of Section 247 of Companies Act, 2013 to apply mutatis mutandis for valuation of partner’s contribution, property/assets/net worth i.e. only valuer registered with IBBI in accordance with Section 247
Read our coverage on the amendments proposed in the Companies Act, 2013 here.
The Statement of Objects and Reasons refers to the Govt’s constant “endeavour to facilitate greater ease of doing business for corporates”; after reading through the provisions of the Bill, that indeed seems to be the intent, though, as happens often, the intent may get miscarried. The provisions are admittedly inspired by the recommendation of the 2025 High Level Committee on Non-financial Regulatory Reforms.
Broadly, the Bill focuses on decriminalisation, streamlining of provisions, bringing more audit quality oversight with powers to NFRA, regulation of the profession of valuations, etc. While doing so, it also makes the provisions of the State more aligned to present day realities, permitting greater digitisation, recognising concepts such as stock-appreciation rights or similar share-related benefits, etc. Note that the Bill has been referred to the Joint Parliamentary Committee.
Directors and KMPs
Directors related
Independence criteria for Independent director
Clarification u/s 149(6)(e)(i) and (ii) referring to disability of a person to be appointed as ID in case of his association with the appointee company, its holding, subsidiary, associate or their auditor for not just “three financial years immediately preceding the financial year” but also “or during the current financial year”.
Amount of transaction allowed with a legal or consulting firm whose employee / partner / proprietor may be appointed as the ID of the company / its holding / subsidiary / associate has been changed from “10% or more of the gross turnover of such firm” to “amounting to 10% or such lower per cent., as may be prescribed of the gross turnover of such firm”
Where the transaction of such legal or consulting firm with the company, its holding or subsidiary or associate company is less than the prescribed thresholds, the ID may continue his association with the legal or consulting firm
Clarification: that every ID shall ensure that he continues to fulfil the requirements specified under sub-section (6) during the term of his appointment.
The restriction in respect of appointment or association in any other capacity during cooling off period of three years is applicable to the company as well as its holding, subsidiary or associate company.
Clarification: any period during which an ID has served as an additional director of the company, shall be included in his tenure as an ID
Additional director
An additional director may hold office up to the date of the next general meeting or up to a period of three months from the date of his appointment, whichever is earlier.
Restriction for appointment of a person not considered / approved to be director in a general meeting
a person whose appointment as a director could not be considered or could not be approved in a general meeting, shall not be appointed by the Board as an additional director, or alternate director or a director against a casual vacancy without the prior approval of its members
Disqualifications of a director
Clarified: While sec 188 has been decrimilarised since 2020, the respective reference u/s 164(1)(g) was not amended. Post amendment, a person has been subjected to a penalty for default under section 188 of the said Act will be disqualified from appointment.
an auditor or a secretarial auditor or a cost auditor or a registered valuer or an insolvency professional of the company or its holding, subsidiary or associate company discharging the functions as such under the Act or under the IBC during the immediately preceding three financial years or during the current financial year, shall be disqualified to be appointed as a director.
What or who is a “fit and proper person”
Criteria shall be prescribed in the rules
Reduces the period of non-filing of financial statements or annual returns from “3 financial years” to “2 financial years” so that companies are more diligent in filing such documents within time.
Default of sec 164(2) will lead to vacancy of office in every company where he is a director (including the company which is in default under that sub-section), after six months from the date of incurring such disqualification or upon expiry of his tenure in such company, whichever is earlier. Proviso to sec 167(1)(a) also proposed to be amended. Of course, the automatic vacation of office takes place 6 months after the disqualification. This may result in a curious situation where every director of a defaulting company gets disqualified, leaving the company headless. How does a headless company ever come out of the default is a curious question.
Board Meeting
Small companies / OPC and dormant companies may have one BM in a calendar year against the requirement of one BM in each HY.
Subsequent disclosure u/s 184(1) will be required only in case of any change in the disclosures made and not “at the first meeting of the Board in every financial year”.
Sec 185 (clarification)
LLPs are also covered along with firms u/s 185(1)(b) i.e company cannot extend loan / guarantee/ security in connection with loan to even LLPs where the directors / their relatives are partners
Resignation by whole time Non director KMP – New insertion 203A.
CFO, CS may resign giving notice in writing to the company,
Board shall take note and shall intimate the RoC:
In case of failure to intimate RoC by Board, said KMP may forward a copy of his resignation along with detailed reasons for his resignation to the RoC
Resignation takes effect from the date on which the notice is received by the company or the date, if any, specified by such KMP in the notice, whichever is later. This is, again, surprising as KMPs are not only office-holders, they are also bound by the contractual terms of their employment. It is unthinkable to think of an employment contract that allows an office holder at that level to resign with immediate effect. While the very intent of this provision is difficult to understand, in our view, the only way to align this with employment contracts is to say that for giving the notice u/s 203A, the KMP shall have to adhere to the employment contract.
Such KMP will be liable even after his resignation for the default for which he was liable during his tenure.
Secretarial Audit – Sec 204
Allowing multi disciplinary firms with majority of PCS as partners to undertake secretarial audit
Directors Report
Additional disclosure in directors report:
While the management is required to explain or comment on every observation, comment or adverse remark of auditor, specific attention has been made to comment on matters relating to:
financial transactions
matters which have any adverse effect on the functioning of the company
maintenance of accounts
details in respect of composition of the ACB and where the Board had not accepted any recommendation of the ACB, a statement along with the reasons for the same
Issuance and buy of securities
Private placement offences become more punitive: Proposed amendment to increase the penalty for private placement offences to Rs 2 crores or up to the amount involved in the placement, whichever is lower. This may potentially relate to some of the so-called private placements against which adjudication orders were made by some registrars. Read our related articles
More flexibility for Buyback of shares [Sec 68]
Power to prescribe different percentage of maximum buy-back value (based on aggregate of paid-up capital and free reserves) for prescribed class of companies
Currently the maximum buy-back size is 25% of aggregate of paid-up share capital and free reserves for all classes of companies
It appears that the government may offer more flexibility for scaling down business by companies; notably, the tax provisions for buybacks were rationalised by the Finance Act, 2026.
Enabling prescribed class of companies to make upto two buyback offers in a year; with minimum gap of 6 months between closure of first buyback offer and opening of second buyback
Such enabling clause is proposed for companies that are debt-free
Currently, minimum time gap between two buyback offers shall be atleast 1 year
Doing away with the requirement of affidavit for declaration of solvency by the directors
Share capital of IFSC companies
Section 43A inserted
Companies set up and incorporated in IFSC are allowed to convert, issue and maintain capital in permitted foreign currency
IFSCA will prescribe regulations.
Books of accounts, financial statements and other records to also be aligned to be prepared in the permitted foreign currency unless IFSCA permits to maintain these in Indian rupees
Presently, the Companies Act does not include specific provisions to enable companies to prepare accounts or financial statements in foreign currencies. Taking into account the nature of companies set up in IFSC jurisdiction, this is a welcome change. It also seeks to clarify that such companies shall pay fees, fines and penalties under the Companies Act and the rules made thereunder in Indian rupees.
Recognition of other forms of share-linked benefits, such as SARs, RSUs etc.
Inclusion of reference to “or such other scheme linked to the value of the share capital of a company” in certain provisions, such as:
Issue of shares to employees on preferential basis in addition to ESOPs [Sec 62(1)(b)]
Class of security holders to be excluded while counting the number of allottees in a financial year for private placement limits [Sec 42(2)
Reason – executive compensation is issued with approval of shareholders
Enabling buyback of such securities [Sec 68(5)(c)]
Come-back provision: Trust not to be recognised as member [Sec 88(2A)]
The good old principle of CA 1956, that no notice of trust shall be taken in the register of members, subsequently removed in CA 2013, is now finding its way again.
Quite likely, the trigger may have been FATF concerns, to ensure that beneficial ownerships are not garbed under the so-called notice of trust.
However, the classic principle that companies shall not recognise holding of shares in fiduciary capacity belongs to the bygone era where shares were partly paid, and companies had difficulty in claiming money from the contributories. In recent practices, the law specifically requires noting of beneficial interest [sec. 89] – hence the relevance of this provision is difficult to understand.
Dividend and IEPF
Dividend and IEPF
Clarified that the dividend not paid / claimed on the shares which has been transferred to IEPF, shall also be transferred to IEPF
Clarified that amounts in respect of shares bought back and extinguished, remaining unpaid or unclaimed for seven or more shall be credited to IEPF
Audit and Auditors
Audit and auditors
Non audit services
an auditor or audit firm of prescribed class or classes of companies shall not provide, directly or indirectly, any non-audit services to the company or its holding company or subsidiary
restriction under s. 144 shall also apply for a period of 3 years after the auditor or audit firm has completed his or its term u/s 139(2)
Fine prescribed for sec 143 (except sub-section 12) and sec 146
This will mean, if the auditor is not attending the general meetings, he shall be liable to fine and punishment under sec 147(2)
Cost Audit
Empower the Central Government to provide standards of cost accounting by rules, after examination of recommendations of the Institute of Cost Accountants of India.
NFRA
Strengthening NFRA – Sec 132
NFRA shall be a body corporate
Chairperson shall have the power of general superintendence and direction of affairs of NFRA.
the executive body of NFRA may, by way of a general or special order in writing delegate such of its powers and functions as it considers necessary to the chairperson
NFRA can give orders relating to imposing penalty or debar the member of the firm
NFRA can also give warning or censure to the member or the firm or may require additional professional training of the member or the firm or can also refer the matter to central government for taking action
any person who fails to comply with any order of the NFRA u/s 132(4) or fails to pay the penalty imposed shall be liable to punishment with imprisonment, fine and further period of debarment.
NFRA shall meet at such times and places as specified by regulations of the said authority.
Appointment of secretary and such other employees shall be done by the NFRA.
No act or processing of NFRA shall be invalid merely by the reason of-
(a) any vacancy in, or any defect in the constitution of such Authority; or (b) any defect in the appointment of a person acting as a member of such Authority; or (c) any irregularity in the procedure of such Authority not affecting the merits of the case. Subsection(16) to be inserted
Intimation of registration details of auditors and filing of returns – Section 132A
No firm shall be appointed as auditor unless the individual or firm intimates the details of his or its registration with the ICAI, to the NFRA within such time.
The auditors shall file such documents or returns or information with the NFRA, , as may be specified by regulations by the said Authority
Non compliance with the above provision shall attract penalty of not less than twenty-five thousand rupees, but which may extend to five hundred rupees for each day during which such default continues, subject to a maximum of twenty-five lakh rupees, if such person is an auditor or an audit firm
If a person while performing his duties under this section, knowingly furnishes false information, omits material facts or wilfully alters/suppresses/destroys required documents he shall be liable to penalty of not less than fifty thousand rupees, but which may extend to one thousand rupees for each day during which such default continues, subject to a maximum of fifty lakh rupees, if such person is an auditor or an audit firm.
Section 132B
The CG may make grants to the NFRA.
NFRA fund shall be created and the following shall be credited there:
Grants by the Central government
All fees received by the authority
All sums received by the said authority from such other sources
Interest or other income received out of the investments made by NFRA.
The fund shall be applied for meeting the expenses of NFRA for the discharge of its functions.
NFRA can now give directions to the certain classes of companies as it considers appropriate.
NFRA can hold inquiry and it shall have power to summon and enforce attendance of any person
There are some more changes relating to NFRA which are not very relevant.
Corporate Social Responsibility
Corporate Social Responsibility
Enhancing applicability threshold of net profit from 5 crore to 10 crore under 135(1)
Enable additional time period for transfer of unspent CSR amounts relating to ongoing projects to the Unspent CSR Account from “30 days” to “90 days” i.e extending the time till 29th day of June of each year.
Companies having minimum CSR spent u/s 135(5) up to 1 crore (or such other higher amount) need not constitute the CSR Committee [sec 135(9)]
New insertion: prescribed class or classes of companies which fulfil prescribed conditions shall not be required to comply with the section
Schemes
Easing of Schemes of arrangements
An important and welcome change: Schemes of arrangement will not require adjudication by multiple NCLTs in case of multiple states. Proviso to sub-section (1) allows the matter to be disposed of by the NCLT of the transferee or resulting company’s jurisdiction. Currently, a lot of time is lost as each Bench continues to wait for the orders of the other.
In case of fast track mergers, applications are filed before jurisdictional RD by transferee/ resulting company, and in cases where the RD found that the application is not in public interest or in the interest of the creditor, RD is required to file an application to the Tribunal. Now, such application is to be made to the Tribunal having jurisdiction over the transferee/resultant company only.
In case of demerger, a report from OL will not be needed.
Fast Track mergers [Sec 233]
The amendment reduces approval requirements in the following manner- –
In case of members, twin test approval will be applicable. i.e. ‘Majority in number representing 75% in value of the members present and voting’
In case of creditors, 75% majority in value will suffice as opposed to the present 90%..
Central Government gets power to make rules procedures with regard to fast track mergers u/s 233.
A new Section 233A has been introduced, dealing with ‘Treasury shares’
While sec 230 and 232 specifically provides that any treasury shares arising as a result of a compromise or arrangement shall be cancelled and extinguished, however treatment w..r.t. Shares held prior to commencement of CA, 2013 are not provided in the Act.
To avoid misuse of voting rights vide such treasury shares, Section 233A now provides a three-year sunset period requiring all existing treasury stock in entities to not carry voting rights after such period.
Consequence of non compliance with the above is also prescribed as follows-
In case of failure to comply within the prescribed period of 3 years, such shares shall be cancelled or extinguished, and such extinguishment or cancellation will be treated as capital reduction
Further, non compliance will attract a penalty of Rs. 10,000/- per day during which the default continues to the company and every officer in default.
IBBI to be Valuation Authority; valuers get significant powers and responsibilities
IBBI – Appointed as “Valuation Authority” and entrusted with the powers to grant certificate to Registered Valuers and Valuers’ Organisation and imposing penalties in Registered Valuers
Appointment of a valuer will be done with audit committee resolution:
The new requirement that appointment of valuers will have to be done by the audit committee should be read with sec 247 (1) – it only relates to such valuations as are required under the Act.
Several powers, including those for regulation making, are proposed to be given to IBBI.
Striking off names of defunct companies – [Sec 248]
Conditions for strike off names by RoC becomes to introduce other grounds
non happening of any significant accounting transaction in the preceding 2 years and in the current FY.
Meaning of significant accounting transaction same as u/s 455
Additionally, has not filed financial statements or annual returns that were due to be filed for two consecutive financial years preceding the previous financial year
An illustration to clarify the same has also been inserted.
In case of opting for striking off by companies, ‘manner of extinguishing liabilities’, to be prescribed vide Rules
The offence relating to filing an application for strike off in violation of the prescribed conditions has been decriminalised by replacing the penal provision with a monetary penalty
Earlier– Punishable with fine which may extend to Rs. 1,00,000
Now: Liable to a penalty of Rs. 50,000
Revival application u/s 252
If made within 3 years of striking off, application to be filed before RD
If made after 3 years but before 20 years, application to be filed before NCLT
Incorporation related
Declaration from professionals required at the time of incorporation only if their services are engaged in the formation or incorporation of such company [Sec 7(1)(ba)]
Ease of compliances
Charges related
Additional time for registration of charges for prescribed class of companies (for e.g. – small companies)
120 days instead of existing 60 days from creation of charge after payment of such ad valorem fees as may be prescribed.
Auditor appointment (small companies)
Class of companies like small companies to be prescribed who, upon fulfilment of the prescribed conditions, shall not be required to appoint auditors under Chapter X.
Moving towards digitalisation
Powers to prescribe certain class of companies that will be required to maintain a website, an email address and other modes of communication [Sec 12A]
The class of companies will be listed companies or other unlisted public companies meeting prescribed thresholds
The form and manner of these modes will be prescribed
Details of website, e-mail address and other modes of communication, and the changes therein shall be intimated to the Registrar in the prescribed manner and timeline
Powers to prescribe class of companies that will be required to service prescribed class of documents to their members only through electronic means [proviso to Sec 20(2)]
Manner in which members may seek physical copies will be prescribed
Enable holding of AGM and EGM in fully physical/ virtual/ hybrid mode in the manner prescribed under the rules [Sec 96 and 100]
However, mandatory to hold AGM in physical mode atleast once in every 3 years
Number of members referred to in sec 100(2) may put requisition for the meeting to be held in a hybrid mode
For fully virtual EGMs, notice period to be reduced from 21 clear days to 7 days or such period and manner to be prescribed by the rules
In case of specific requisition by members to hold meeting in hybrid mode, mandatory to conduct meeting in such form
Penalty and prosecution
Fixed penalty prescribed in place of a range of penalty
The penal proposals inter-alia include the following:
Section
Action
Existing Penalty
Proposed Penalty
4(5)(ii)
Name applied by furnishing wrong or incorrect information
Upto 1 Lakh
50, 000
42(10)
Makes offer or accepts money in contravention of sec. 42
Upto money raised through private placement or 2 crore, whichever is lower
Money raised through private placement or 2 crore, whichever is lower
128(6)
MD, WTD, CEO fails to comply with Section 129
50,000 – 5,00,00
5,00,000 – listed company and 50,000 -any other company
166(8)
Director violated the provisions of sec. 166 except sub-section (5)
1 lakh – 5 lakh
Listed company – 5 lakhOther company – 2 lakh
189
Fails to comply with provisions w.r.t Register of contracts or arrangements in which directors are interested
NA
2 lakh
446B
Lesser Penalty for certain companies
In case of Company- upto 50% of penalty specified in provisions upto 2 lakh In case of officer in default or any other person- upto 50% of penalty specified in provisions upto 1 lakh
In case of Company- 50% or such per cent not exceeding the 50% penalty prescribed in such provision upto 2 lakh In case of officer in default or any other person-50% or such per cent not exceeding the 50% penalty prescribed in such provision upto 1 lakh
Fixed penalty in case of non-compliance under sec 152, 155, 156. Also fixing a maximum penalty upto 5 lakh in case of continuing non-compliance.
Decriminalisation of offences under following provisions, including:
Section
Action
Existing FIne
Proposed Penalty
128(6)
MD, WTD, CEO fails to comply with Section 128
50,000 – 5,00,000
5,00,000 – listed company and 50,000 -any other company
147(1)
Punishment for contravention of provisions of sections 139 to 146
Company- Fine – 25,000 – 5,00,000 OID – Fine – 10,000 – 1,00,000
Company – Penalty – 1,00,000 – 5,00,000 OID – Penalty – 25,000 – 1,00,000
166(7)
Default in complying with Section 166 except sub-section (5)
Director – 1,00,000 – 5,00,000
Listed company – 5,00,000Any other Company – 2,00,000
167(2)
In case a Director continues as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications
Director – 1,00,000 – 5,00,000
Listed company – 5,00,000Any other Company – 2,00,000
Realigning the financial year to the period ending on 31st March
Companies / body corporates which have changed their FYs pursuant to NCLT approval, may realign it back to period ending 31st day of March of the following year though:
Approving the application; or
On commercial consideration
Expansion of definition of small companies
increasing the upper limit of paid-up share capital to Rs 20 crore from existing 10 crore and upper limit of turnover to Rs 200 crore from existing 100 crore [sec 2(85)]
Compounding of certain offences [Sec 441]
Increase of amount of fine involved to INR 1 crore for the RD to take up compounding matters
Miscellaneous [Sec 447- 470]
Increase in limit of amount involving fraud
The threshold for applicability of fraud leading to minimum 6 months imprisonment increased to 25 lacs instead of 10 lacs. Any fraud involving an amount lesser than that also liable to face imprisonment which can extend to 5 years and/or fine of 1 crore rupees (earlier 50 lacs rupees).
Decriminalisation of certain offences like improper use of word ‘limited’ or ‘private limited’
CG reserves the power to issue guidelines circulars and directions , for clarifying the intent of a provisions or laying out the procedural requirement with or without holding consultation with experts
Non disclosure of source of information where investigation has been probed by into SFIO
In the context of ‘Dormant Company’, significant accounting transaction also excludes receipt or payment not relatable to the business or operations of the company
Adjudication of Penalties
Assistant Registrar additionally may be appointed as adjudicating officers for adjudging penalty
CG to notify additional appellate authority in addition to RD, not below the rank to Joint Director
Appointment of Recovery officer for recovering penalty under the Act from persons who fail to pay with power to attachment and sale of movable and immovable property [Sec 454B]
Constitution of “Specified Authority” for conducting the settlement proceedings for contraventions which shall be liable for penalty under Act [Sec 454C]
Read our coverage on the amendments proposed in the LLP Act, 2008 here.
With a view to promoting ease of doing business for Finance Companies (FCs) operating in the IFSC jurisdiction, the MCA, upon the request of the IFSCA, has vide its notification dated November 3, 2025, extended the exemptions available under section 186 of the Companies Act, 2013, to FCs registered with the IFSCA – similar to those already available to NBFCs registered with the RBI.
Exempted companies – existing exemption list
Under the existing framework, the following companies were exempted from section 186 (except sub section (1)), if loan given, guarantee made, security in connection with loan given, investment in securities done was in the ordinary course of business of:
Banking company
Insurance company
Housing finance company
Registered NBFCs
which is in the business of giving loans or providing any guaranty or security for due repayment of any loan
Company established with the object of and engaged in the business of providing infrastructural facilities
Finance Companies registered with IFSCA – added in the exemption list
Finance Companies are defined under Rule 2(1)(e) of IFSCA (Finance Company) Regulations, 2021.
FCs should be separately incorporated
It is not a Banking Unit registered with IFSCA
It deals in permitted activities under Reg 5(1)
It cannot accept public deposit from residents / non-residents
FCs engaged in the following permitted activities (Eligible FCs) are exempted from the applicability of sec 186:
Lend in the form of loans, commitments and guarantees, credit enhancement, securitisation, financial lease, and sale and purchase of portfolios
The condition for availing the exemption remains the same as that for NBFCs and other companies i.e the loan / guarantee / security in connection with loan should be extended in the ordinary course of its business.
– Clarification provided in line with exemptions available to NBFCs
– Payal Agarwal, Partner | payal@vinodkothari.com
Section 186 of the Companies Act, 2013 specifies compliance requirements to be followed by a company in granting of loans, making investments, providing guarantee or security to any person or body corporate. For entities engaged in such activities in its “ordinary course of its business”, exemptions are provided through sub-regulation (11) of section 186.
Clause (a) of section 186(11) provides exemption for:
to any loan made, any guarantee given or any security provided or any investment made by a banking company, or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of and engaged in the business of financing industrial enterprises, or of providing infrastructural facilities;
The use of the expression “business of financing industrial enterprises” is explained to include:
NBFC which is in the business of giving of any loan to a person or providing any guarantee or security for due repayment of any loan availed by any person in the ordinary course of its business. [existing provision]
Finance Companies registered with IFSCA engaged in eligible permissible activities in its ordinary course of business (read more on Finance Companies here). [inserted vide the Companies (Meetings of Board and its Powers) (Amendment) Rules, 2025 notified on 6th November, 2025 (date of publication in Official Gazette)]
This brief snapshot provides an overview of the amendment:
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2025-10-23 23:55:172025-10-27 17:52:07Presentation on Fast Track Merger
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2025-10-05 21:54:262025-10-05 22:39:04Revised Form IEPF-5 paves way for simplified claim process
– Barsha Dikshit and Sourish Kundu | corplaw@vinodkothari.com
Introduction
The recent notification of the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025, (‘Amendment’) by the MCA represents a significant move towards further declogging the burden of NCLTs and promoting a more business-friendly restructuring environment. By introducing minor procedural refinements and widening the classes of companies eligible for FTM, the amendments make this route accessible to a larger segment of the corporate sector.
The fast-track merger (FTM) route was introduced under Section 233 of the Companies Act, 2013 (“the Act”), allowing certain classes of companies to get the schemes approved by Regional directors having jurisdiction over the Transferee Company instead of filing of application/ petition before NCLTs having jurisdictions over transferor and transferee company and getting the same approved after following lengthy proceedings. Basically, the FTM route was designed to ease the burden of NCLTs, with a simplified process and a deemed 60-day timeline for completion, making it a quicker and a more cost-effective alternative.
This article explores the key changes introduced through Amendment, the opportunities they create for faster and more economical reorganisations, and the practical considerations and potential challenges that companies may face while opting for this route.
Additional classes of companies can opt for the fast-track route:
Section 233 of the Companies Act, 2013 read with Rule 25 of the CAA Rules, 2016, presently allows the following classes of companies to undertake mergers under the fast-track route:
Two or more small companies;
Merger between a holding company and its wholly-owned subsidiary;
Two or more start-up companies;
One or more start-up companies with one or more small companies.
Often referred to as the “RD Route” in general parlance, the key features of a FTM, include the elimination of NCLT approval, replaced instead by confirmations/approvals from the RoC, OL, members/creditors representing 90% in value, and lastly an order by the jurisdictional RD confirming such merger. [Read the procedure here]
The key change introduced is to extend the benefit of the RD route beyond the presently eligible companies to include the following additional classes:
Scheme of arrangement between holding (listed or unlisted) and a subsidiary company (listed or unlisted) – regardless of being wholly-owned
Until now, only mergers/demergers between WOS(s) and holding companies were permitted under the existing fast track route. However, pursuant to the recent Amendment, merger/demerger between subsidiaries (not limited to wholly-owned ones) and their holding companies are also allowed under FTM route. This effectively removes the ‘wholly-owned’ limitation and extends the benefit to any subsidiary, whether listed or unlisted.
However, it is worth noting that the fast track route will not be available in cases wherein the Transferor company (whether holding company or subsidiary) is a listed company. That is to say, while subsidiaries can be merged with/demerged into a holding company or vice versa under the fast track route, this is only permissible when the transferor company is not a listed company.
Scheme of arrangement between two or more Unlisted Companies
Another significant addition is to allow fast track schemes between two or more unlisted companies subject to certain conditions as on 30 days prior to the date of inviting objections from regulatory authorities u/s 233 (1) of the CA, 2013:-
None of the companies involved should be a section 8 company;
total outstanding loans, debentures and deposits for each company must be less than ₹200 crores , and
There must be no default in repayment of any such borrowings.
All the aforesaid conditions are required to be satisfied on two occasions viz. within 30 days prior to the date of inviting objections from the regulatory authorities u/s 233(1) and on the date of filing of declaration of solvency in form CAA-10. The latter is to be accompanied with a certificate of satisfaction of the conditions above, by the auditor of each of the companies involved, in a newly introduced form CAA-10A, which will form part of the annexure to the respective declarations of solvency.
It is pertinent to note here that no common shareholding, promoter group, or common control is required between the unlisted companies seeking to merge under this route. In other words, even completely unrelated unlisted companies can now opt for a fast track merger, provided they meet the financial thresholds and other prescribed conditions.
Scheme of arrangement between two or more Fellow subsidiaries
As of now, inter-group arrangements, like schemes between two or more fellow subsidiaries, were excluded from the purview of the FTM route. However, the Amendment now brings schemes between fellow subsidiaries – i.e., two or more subsidiary companies of the same holding company – within the scope of Section 233, provided that the transferor company(ies) is unlisted. Notably, the requirement of being unlisted is applicable only to the transferor company/ies. That is to say, the Transferee Company can be a listed company.
While the amendments have commendably widened the ambit of fast-track mergers to include mergers between fellow subsidiaries and step-down subsidiaries, a regulatory overlap with SEBI LODR framework may still persist. Under Regulation 37 of the SEBI LODR read with SEBI Master Circular dated June 20, 2023, listed entities are required to obtain prior approval from stock exchanges before filing a scheme of arrangement. This requirement is waived only for mergers between a holding company and its wholly-owned subsidiary.
Given that earlier fellow subsidiaries/ step down subsidiaries were not permitted to opt FTM Route, in an informal guidance, SEBI clarified that this exemption does not extend to structures involving step-down subsidiaries merging into the ultimate parent, thereby requiring compliance with Regulation 37 in such cases.
Accordingly, while the Companies Act now permits fellow subsidiaries and step-down subsidiaries to utilize the fast-track route, the benefit of exemption from prior SEBI/stock exchange approval may not be available, particularly in cases where the transferee company is listed. Unless SEBI extends the exemption framework, listed entities may still need to follow the standard approval process under Regulation 37, which could offset some of the intended efficiency gains of the FTM mechanism
Reverse Cross-Border Mergers involving Indian WOS of foreign companies
While cross-border mergers are governed under Section 234 of the Act and Rule 25A of the CAA Rules, it is amended to absorb the merger between a foreign holding company and an Indian wholly owned subsidiary, currently covered under sub-rule (5) of Rule 25A, into Rule 25 itself to make the index of companies eligible under the FTM route more comprehensive and complete.
The additional compliances applicable in such instances are the requirement to obtain prior approval from the RBI, and submission of declaration in form CAA-16 at the stage of submitting application, in case the transferor holding company happens to share a land border with India.
Implications and Potential Practical Challenges
NCLTs are overburdened with the Companies Act cases and IBC cases. As a result, scheme of arrangement cases often receive limited attention and are subject to significant delays. The recent amendments are undoubtedly a step forward in simplifying and accelerating mergers/ demerger processes. However, certain aspects of implementation may give rise to procedural challenges that warrants careful consideration: :
Seeking approval of shareholders and creditors particularly when the transferee company is a listed company
Section 233(1) of the Act requires approval of the members holding 90% of the total number of shares. This threshold has been observed to be onerous, not just practically, but also duly recognised in the CLC Report, 2022, as the requirement is approval by those holding 90%cent of the company’s total share capital and not 90% of shareholders present and voting. This threshold becomes particularly difficult to achieve in the case of listed companies and may significantly delay the approval process, thereby defeating the very objective of fast-tracking mergers.
This was a practical difficulty faced by companies going through this route, as the approving authority i.e. the RDs, of different regions, did not take a consistent approach, some of them warranting compliance with the letters of law. However, with practice it has been observed that obtaining approval of the requisite majority as present and voting is also accepted as sufficient compliance.
Here, it also becomes important to note that the approval threshold is more stringent in case of FTMs, as compared to arrangements under the NCLT route, which requires a scheme to be approved by three-fourths in majority in an NCLT convened meeting, but the same is again offset by the time and cost involved.
Scheme where transferor company(ies) / demerging undertaking has immovable properties
The NCLT, constituted under Sections 408 of the Companies Act, 2013, is a quasi-judicial body whose orders carry significant statutory weight and are widely recognized by authorities such as land registrars for purposes like property registration and mutation. Concerns may arise w.r.t. the validity of the RD’s order on such schemes. In this regard, it is to be noted that Regional directors function as an extended administrative arms of the Central Government and orders issued by the RD, are legally on par with those of the NCLT. However, an area of concern remains w.r.t. transfer of immovable property as such a transfer is required to be registered with the local registrars, where practically, RD approved schemes may not be having the same effect as that of NCLT approved scheme.
Deemed Approval within 60 Days
Section 233 (5) of the Act requires RD’s to either approve the Scheme within the period of 60 days from the date of receipt of scheme or to file an application before NCLT, if they are of the opinion that such a scheme is not in public interest or in the interest of the creditors.
The section also provides that if the RD does not have any objection to the scheme or it does not file any application under this section before the Tribunal, it shall be deemed that it has no objection to the scheme, and the Scheme will be considered as approved. This “deemed approval” mechanism is in line with international practices, where intra/inter-group restructurings are not typically required to undergo intensive regulatory scrutiny, and schemes are considered approved once sanctioned by shareholders and creditors. For instance, the Companies Act of Japan (Act No. 86 of July 26, 2005) and the Companies Act, 2006 (UK) does not require specific approval of any regulatory authority, except in certain specific circumstances.
It is also important to note that the RD does not have the power to reject a scheme outright. As held by the Bombay High Court in Chief Controlling Revenue Authority v. Reliance Industries Ltd., that the order of a Court itself constitutes an instrument as it results in the merger and vesting of properties inter-se the merging parties. In cases of deemed approval, there seems to be a gap on whether the shareholder and creditor approved scheme is to be itself construed as the instrument of transfer, as there is no explicit approval order of the RD sanctioning the scheme. On the other hand, if the RD believes the scheme is not in public or creditor interest, the appropriate course is to refer the matter to the NCLT. In such cases, the fast-track process effectively resets, and the scheme follows the standard route before the NCLT, potentially undermining the objective of speed and efficiency that the fast-track mechanism aims to achieve.
Power of RD vis-a-vis NCLT
For schemes sanctioned by the NCLT, any amendment or variation thereto can be carried out by making an application to the tribunal, by way of an interlocutory application, and NCLT, after considering the observations of the regulatory authorities, if any, has the power to pass necessary orders. That to to say, for the Schemes originally sanctioned by the NCLT, any amendment thereto will also be done by NCLT and not any other forum. Here, a question may arise as to whether the RD, which is the ultimate authority to approve fast track schemes, has similar power, or it has to refer the application seeking amendments to the schemes originally approved by it to the NCLT?
It is a settled principle of law that the authority having the power to approve, only has the authority to allow changes therein. Thus, in case of FTMs, if schemes are originally approved by RD, application for amendment thereto may also be preferred before the RD, unless, the RD itself is on the opinion that the matter requires consideration by the Hon’ble Tribunal.
Regulatory Approvals in Case of Cross-Border Mergers
Regulation 9(1) of the FEMA (Cross-Border Merger) Regulations, 2018, provides that mergers complying with the prescribed framework are deemed to have RBI approval. Yet, as a matter of process, notices of such schemes must now be served on all relevant regulators, including the RBI, SEBI, IRDAI, and PFRDA, for their comments or objections. This strengthens oversight but could also lengthen timelines, as companies may need to wait for regulator clearances before giving effect to the scheme.
Administrative Capacity of RD Offices
A further consideration is the capacity of RD offices to process the increased number of cases that the expanded FTM eligibility is expected to generate. While there are nearly 30 NCLT benches handling merger matters across India, there are only seven RDs, each with jurisdiction over multiple states and union territories. The RD already endowed with oversight of conversion of public company into private company, approval in case of alteration of FY, rectification of name, etc., in addition to the widened ambit of FTMs. This concentration of responsibility may create administrative bottlenecks, and timely disposal will be critical to preserve the efficiency advantage of the fast-track route.
Conclusion
The Amendments mark a progressive step towards making corporate restructurings quicker and more efficient by widening the scope of Fast Track Mergers, introducing financial thresholds for unlisted companies, and streamlining procedural requirements. Importantly, a specific clarification has now been inserted to state that these provisions shall, mutatis mutandis, apply to demergers as well, thereby removing any interpretational ambiguity on the subject, modifying the forms as well. If implemented effectively, these changes have the potential to substantially declog the NCLTs while giving companies a smoother, time-bound alternative for reorganizations.
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2025-09-09 18:10:032025-09-11 11:06:11Widening the Net of Fast-Track Mergers – A Step Towards NCLT Declogging
