Corporate Financial Reporting · Accounting for Business Combination and Restructuring

Regulatory Framework for Mergers and Restructuring under Companies Act 2013

Updated 11 October 2026 · Fact-checked

Mergers in India are mainly governed by Sections 230 to 232 of the Companies Act, 2013. The company files a scheme with the NCLT, creditors and members approve it in meetings, and the NCLT sanctions it. Small companies and holding-subsidiary pairs can use the fast track route under Section 233 without the NCLT hearing process.

Understand Regulatory Framework for Mergers and Restructuring

A company cannot simply merge with another by passing a board resolution. A merger changes the rights of members and creditors, so company law lays down a procedure that protects them. This procedure is the regulatory framework for mergers and restructuring.

The core law is in Sections 230 to 232 of the Companies Act, 2013. Section 230 deals with a compromise or arrangement between a company and its creditors or members. Section 232 deals with the merger and amalgamation of companies and gives the NCLT power to sanction the scheme. Section 233 gives a simpler fast track route for certain companies.

The usual path is: the board approves the draft scheme, supported by a valuation report and a fairness view, and the scheme is filed with the NCLT. The NCLT directs meetings of members and creditors, and notices go to regulators such as the Central Government, the Registrar of Companies, the Income-tax authorities and SEBI where the company is listed. Objections are invited, and the NCLT then sanctions the scheme if it is satisfied. Once the order is filed with the Registrar, the scheme takes effect from the appointed date or the date the order specifies.

Valuation matters because shareholders of the merging companies must get a fair deal. A valuer works out the value of each company and arrives at a share exchange ratio (swap ratio), which decides how many shares of the transferee company are issued for each share of the transferor company.

The tax angle is that an amalgamation can be tax-neutral only if it meets the conditions the tax law lays down for an amalgamation. The accounting angle is Ind AS 103 for ordinary acquisitions and Appendix C for common control combinations. You should read the legal approval and the accounting treatment together, because a scheme sanctioned by the NCLT can set the appointed date and the accounting method to be followed.

Key rules to remember

Share exchange ratio (swap ratio): Swap ratio = Value per share of transferor ÷ Value per share of transferee; Values per share come from the valuation method used, usually a weighted mix of net asset, earnings and market value. Weights must be stated by the question.
Shares to be issued: Shares issued = Shares of transferor × Swap ratio; Where the ratio is given as 'x shares for every y shares held', use x ÷ y.
Purchase consideration (share-based): Purchase consideration = Shares issued × Value per share of the transferee's shares; Use the fair value of the shares issued as the question specifies. Add any cash paid.
Reserves in a common control combination (Ind AS 103, Appendix C, para 12): Capital reserve = Share capital of transferor − (Share capital issued + additional cash or other assets); The identity of reserves is preserved. This difference goes to capital reserve, shown separately with its nature and purpose disclosed.
Acquisition-related costs (Ind AS 103, para 53): Acquisition-related costs = expensed when incurred and services received; The exception is the cost of issuing debt or equity securities, which follows Ind AS 32 and Ind AS 109.

How to solve Regulatory Framework for Mergers and Restructuring questions

Questions on this topic are either procedural (list the steps, the approvals, the authority) or numerical (swap ratio and shares issued). Use a fixed order so you do not skip a mark.

1Read the facts and decide the type of arrangement: compromise, arrangement, merger or amalgamation, or fast track under Section 233.
2Identify the parties: transferor, transferee, whether one is a holding or subsidiary, small company or listed company.
3State the authority: the NCLT for Sections 230-232, with the Central Government and Regional Director for the fast track route.
4List the procedural steps in order: board approval and valuation report, filing, directions for meetings, approval by members and creditors, notice to regulators, hearing and sanction, filing with the Registrar.
5For numerical parts, compute values per share by each method, apply the stated weights, then work out the swap ratio.
6Compute shares issued and the purchase consideration, and note any cash or fractional share settlement.
7Link to accounting: state whether it is an acquisition under Ind AS 103 or a common control combination, and give the matching treatment.
8Close with a one-line conclusion or recommendation for the company or shareholders.

Quickest way: Four-line answer frame for procedure questions

When to use it: Use it when a descriptive question asks for the procedure or the difference between the normal and the fast track route and you have only a few minutes.

Line 1: name the section and the authority (Sections 230-232, NCLT; Section 233, fast track).
Line 2: list the sequence: board and valuation, filing, meetings, regulator notices, sanction, Registrar filing.
Line 3: state who can use the fast track route: small companies, and holding and wholly owned subsidiary companies, among the cases the Act lists.
Line 4: add the accounting link, either Ind AS 103 or Appendix C, and the effect of the appointed date.

Common mistakes in Regulatory Framework for Mergers and Restructuring

Confusing Section 230 with Section 232 and treating them as the same thing.
Both appear in the same scheme and the NCLT deals with both in one petition.
Fix: Remember that Section 230 covers compromises and arrangements generally, while Section 232 deals specifically with mergers and amalgamations and the NCLT's powers to sanction them.
Saying the fast track merger needs NCLT hearings like the normal route.
Students recall only the normal route.
Fix: Under Section 233 the scheme goes through notice to the Registrar and the Official Liquidator, approval by members and creditors, and confirmation by the Central Government. NCLT intervention arises only in limited cases, for example where the authorities object.
Dividing transferee value by transferor value when computing the swap ratio.
The ratio is stated as 'shares of the transferee for shares of the transferor', which flips the mental picture.
Fix: Write it as value per share of the company being absorbed divided by value per share of the issuing company, then check that a higher-valued target gives more shares.
Capitalising acquisition-related costs such as legal and advisory fees into goodwill.
Older practice treated them as part of cost.
Fix: Under Ind AS 103 paragraph 53 these are expensed when incurred and the services are received. Only the cost of issuing debt or equity securities follows Ind AS 32 and Ind AS 109.
Writing off reserves in a common control combination.
Students apply the acquisition method and eliminate the target's reserves.
Fix: Under Appendix C paragraph 12 the identity of reserves is preserved. Only the difference between shares issued plus other consideration and the transferor's share capital goes to a separately presented capital reserve.

Worked examples

Example 1

A Ltd and B Ltd plan to merge. Value per share is ₹150 for A Ltd (transferee) and ₹90 for B Ltd (transferor). B Ltd has 4,00,000 shares. Compute the swap ratio, the shares A Ltd must issue, and the purchase consideration if A Ltd's shares are issued at ₹150 each.

Show the solution

Swap ratio = 90 ÷ 150 = 0.6, that is 3 shares of A Ltd for every 5 shares of B Ltd.
Shares to be issued = 4,00,000 × 0.6 = 2,40,000 shares.
Purchase consideration = 2,40,000 × ₹150 = ₹3,60,00,000.
Check: 2,40,000 × 150 = ₹3,60,00,000, which equals 4,00,000 × ₹90 = ₹3,60,00,000.

Answer: Swap ratio is 0.6 (3 for 5). A Ltd issues 2,40,000 shares. The purchase consideration is ₹3,60,00,000.

Example 2

Explain the main steps for sanction of a merger scheme between two unlisted companies under Sections 230 to 232, and state when the fast track route under Section 233 can be used.

Show the solution

Board of each company approves the draft scheme, supported by a valuation report on the swap ratio.
A petition with the scheme is filed with the NCLT, which directs notice and the holding of meetings of members and creditors.
The meetings approve the scheme by the majority the Act requires. Notice also goes to the Central Government, Registrar, Income-tax authorities and other regulators concerned, who may object.
The NCLT hears objections. If satisfied that the scheme is fair, it sanctions it, and the order is filed with the Registrar.
The scheme operates from the appointed date stated in it or the date the order specifies.
Fast track under Section 233 is available for specified cases, namely mergers of two or more small companies, and of a holding company with its wholly owned subsidiary, among others the Act and rules list. Here approval is by members and creditors, and the Central Government confirms, with the NCLT stepping in only in limited cases.

Answer: The normal route runs through the NCLT: board and valuation, filing, meetings, regulator notices, hearing and sanction, then Registrar filing. The fast track route under Section 233 is a simpler route for small companies and holding and wholly owned subsidiary mergers.

Exam tips

Expect the objective section to test who approves what: NCLT for Sections 230-232, Central Government for fast track. Learn this pair cold.
In swap ratio problems, show the weighting table clearly. Marks go to method even if the arithmetic slips.
Always add the accounting link in a descriptive answer: Ind AS 103 for acquisitions, Appendix C for common control, and expensing of acquisition costs under paragraph 53.
For case-style questions, say which route applies and why, using the facts of size, holding relationship or listing.

Practice questions from Accounting for Business Combination and Restructuring

Regulatory Framework for Mergers and Restructuring: frequently asked questions

What is the difference between Section 230 and Section 232 of the Companies Act?

Section 230 covers compromises and arrangements between a company and its creditors or members. Section 232 deals with mergers and amalgamations and the NCLT's power to sanction them. A merger scheme usually uses both together.

What is a fast track merger under Section 233?

It is a simpler route for specified mergers, such as those between small companies or a holding company and its wholly owned subsidiary. Members and creditors approve the scheme, and the Central Government confirms it, so a full NCLT hearing process is generally avoided.

How is the share swap ratio decided?

A registered valuer values each company, usually by net asset, earnings and market methods, and weights the results. The swap ratio is the value per share of the transferor divided by the value per share of the transferee.

Are legal and advisory fees part of goodwill in a business combination?

No. Under Ind AS 103 paragraph 53, acquisition-related costs are expensed in the period incurred and services received. The exception is the cost of issuing debt or equity securities, which follows Ind AS 32 and Ind AS 109.